Each tax year you can gift up to £3,000 and claim an immediate exemption from IHT which means that the gift will not be counted as part of your estate. You can also carry forward any unused exemption for one year only. This means that the maximum you can give and claim immediate relief from IHT is £6,000. This exemption applies individually, so a couple can use their combined exemptions.

You can also make gifts on marriage and claim an immediate exemption from IHT. The limits are £5,000 for a child, £2,500 for a grandchild or great-grandchild and £1,000 for anyone else.

There is also a small gift exemption of up to £250 per year to any number of people, provided you haven’t already made a gift to them and claimed one of the other exemptions.

Although, these annual exemptions may seem small, they can add up to a significant amount over time through regular gifts.

You can also make gifts to charities (UK registered) and political parties and qualify for an immediate exemption from IHT.

One of the lesser known IHT reliefs which can make reduce the value of your estate is the ability to make regular gifts out of surplus income and claim an immediate exemption from IHT.

To qualify, the regular gifts must be made from income and not capital. You need to be able to demonstrate that the income is surplus to requirements. Income can include employment and pension payments, savings income, rental income, trust income etc. You must not compromise your normal standard of living having made the gifts. The gifts do not need to be made to the same person and do not have to be made with the same frequency.

There is no minimum period over which the gifts must be made. It is the intention to make regular gifts which counts. It is therefore a good idea to communicate your intention to make regular gifts out of surplus income in writing as this may mean the difference between HMRC accepting a claim for the relief on your death, or not.

This relief applies not only to gifts to individuals, but can apply to gifts into trust, which may otherwise attract a lifetime IHT charge.

A potentially exempt transfer, or a PET for short is the term for a gift you make in your lifetime, which is exempt from IHT when it is made, but is then only liable to IHT, if you do not survive 7 years from the date of the gift.

There’s no limit to how much you can gift as a PET.

If you do not survive 7 years from the date of the gift, the value of the gift is deducted from your nil rate band in chronological order and then any remaining nil rate band is offset against your death estate. There is however a taper relief available if you survive more than 3 years from the date of the gift, but less than 7 years. The longer you survive the higher the relief.  The relief starts at 20% for between 3-4 years, increasing by 20% each year, until it reaches 80% for between 6-7 years.

The taper relief does not reduce the value of the gift, it instead reduces the tax due on the PET which becomes chargeable, known as a ‘failed’ PET. The tax due on a failed PET is payable in the first instance by the recipient of the gift, to the extent that it exceeds the nil rate band, looking at all chargeable transfers within 7 years of death on a chronological basis.

Monies gifted in lifetime to most trusts over the nil rate band are classed as chargeable lifetime transfers ‘CLTs’. This means that the gifts attract an immediate charge to IHT, but at half of the IHT death rate of 40%, so currently 20%.

If you do not survive 7 years from the date of the gift being made, there is an additional 20% IHT due upon your death.

CLTs can also arise on gifts made to a third party, for example by grandparents directly to a school to settle school fees. This is on the basis that there is no single person to collect the tax from if the gift fails, unlike a PET.

These rules mean that a gift is regarded for IHT purposes if the donor of the gift continues to derive a benefit from the asset. A common example of this is when a parent gives away the family home but continues to live in it without paying a fair market rent for doing so.

There are instances when the gift with reservation rules will not be applied, say where a child moves in with their parent in return for a share of the property, but there are strict rules in place which must be followed to prevent the gift with reservation rules applying. I can advise you on these.

Read more: How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts – GOV.UK (www.gov.uk)

Lifetime gifts to UK registered charities qualify for an immediate exemption from IHT.

Leaving some of your money or assets to charity on your death can also help reduce your inheritance tax bill, as well as being able to help a cause you care about. This is known as a ‘charitable legacy’. If you leave at least 10% of your net estate to charity in your Will, it can reduce the IHT rate applied to the remainder of your estate from 40% to 36%.

Read more:  Tax relief when you donate to a charity: Leaving gifts to charity in your will – GOV.UK (www.gov.uk)

Not necessarily, inheritance tax returns broadly fall into two categories, returns to report lifetime transfers and chargeable events, in relation to trusts, such as entry charges, 10-year charges and exit charges, these are known as form IHT100, or  more commonly the form IHT400, which is completed to report details of all assets held at the date of death and their corresponding value, less any reliefs which may be due.

Read more: Inheritance Tax forms – GOV.UK (www.gov.uk)

The Tax Angel can complete all types of IHT returns on your behalf and calculate the IHT due, whilst ensuring that any appropriate reliefs are claimed to minimise any inheritance tax liability due.

When gifting an asset you also need to bear in mind that there may be other tax implications, for example capital gains tax or perhaps stamp duty land tax if you gift a property which is subject to a mortgage.

You also need to consider if you want someone to benefit outright from a gift, or whether it may be more prudent to transfer the asset to a trust, especially where minor beneficiaries are concerned.

It is also a good idea to take into account the personal circumstances of the recipient of the gift. Are they good with money? Are they at risk of bankruptcy? Are they involved with an unincorporated business which may fail? Are they in a stable relationship?

If you are concerned with asset protection, a trust may be the answer, but you still need to be mindful how assets held within a trust will be taxed.

Keeping good records is key to recording lifetime gifts. This will make it easier for your estate to be administered and make sure that your estate maximises all available IHT reliefs.