Publications featured in include: The Express
The annual gift allowance allows taxpayers to gift only £3,000 each year without incurring IHT. However, this figure has now been frozen for 40 years and should be £11,760 if it had kept pace with inflation.
Neela Chauhan, Partner at our London office says: “It is a useful way to cut IHT but it should be a much bigger allowance. For the gift allowance to remain unchanged for 40 years is extraordinary.
Taxpayers now get a far worse deal than they did when it was first introduced.
Back in 1981, you could buy a brand new car with a £3,000 gift. Today, it wouldn’t even come close.
It’s clear an increase in the tax relief on gifts is long overdue. That’s something the Government ought to look closely at.”
Taxpayers can also use the small gifts exemption which allows individuals to make unlimited gifts of £250 each year, as long as they are given to different recipients. The small gift exemption has also been unchanged since 1980 and would be £1,096 if it had increased in line with inflation.
The amount saved in IHT through gifting only accounts for 0.6% of the £5.3bn which HMRC brought in through IHT last year**, suggesting there is much greater scope for the allowance to be used.
Neela Chauhan adds “Although it may be seen as a relatively small allowance, more individuals should be taking advantage of this tax break. It’s a perfectly legitimate way of passing on wealth to a loved one without incurring IHT.”
Gifting by taxpayers last year consisted of £25m through the £3,000 annual IHT exemption and £5m through the small gift exemption for gifts less than £250.
Iindividuals that have not used their £3,000 annual gift exemption, can carry this forward to the following year. Taxpayers should note that the annual gift allowance and small gift exemption cannot be combined and used on the same person.
