Inheritance Tax - Gift Allowance has not changed with the times
Disclaimer: Please speak with us directly before taking any action - this article is for infomation only and does not constitute formal advice.
Introduced in the 1980's the "Annual Gift Allowance" allows taxpayers to gift £3,000 a year without any Inheritance Tax implications (IHT).
Taxpayers can also use the small gifts exemption which allows individuals to make unlimited gifts of £250 each year.
The most recent figures show that taxpayers saved £30m in inheritance tax (IHT) through gifting last year, consisting of £25 Million through the £3,000 annual IHT exemption and £5 Million through small gifts.
However the levels of allowance have remained unchanged for almost 40 years, and if they had been adjusted for inflation, would actually be closer to £11,760 annual allowance and a small gift allowance of nearly £1,100.
There is widespread criticism therefore that the IHT allowances have left taxpayers in a far worse position than previously especially given the rise in cost of living and house prices - such that "Gifting" while a legitimate form of reducing IHT, is not nearly as effective as it was.
IHT receipts received by HMRC during the tax year 2020-21 totalled £5.4bn, and so the savings made through gifting pale into insignificance next to this
With that said, it is certainly a legitimate allowance taxpayers should look to take advantage of if they are in a position where they are considering their IHT situation over the coming years.
For clients with Inheritance Tax questions, please contact us at firstname.lastname@example.org, and we'll be happy to arrange a consultation.