Now's a great time to gift
- Michael Roberts FPFS
- Mar 5
- 4 min read
How to maximise the IHT Annual Exemption to Gift £9,000 (or £18,000 for a couple):
A Step-by-Step Guide
Navigating estate planning can feel overwhelming, especially when dealing with tax regulations. However, there's a straightforward way to give to your loved ones while minimising your inheritance tax (IHT) obligations.
At this time of year, by utilising the IHT annual exemption effectively, you can gift £9,000, immediately free from IHT, and with no 7-year clock ticking before the gift becomes IHT-free. Let's explore how you can make this happen.
Understanding the IHT Annual Exemption
The IHT annual exemption allows individuals to gift up to £3,000 each tax year completely free from inheritance tax.
An important feature of this exemption is the ability to carry forward any unused portion from the previous tax year. For instance, if you didn't gift the full £3,000 last year, you can combine that amount with this year's exemption. This means that in one year, you could potentially gift up to £6,000.
With the new tax-year just around the corner, this may allow you to use 3 years' worth of allowances over the next few weeks.
Step-by-Step Guide to Gift £9,000 Each
Step 1: Identify recipients and check affordability
Start by thinking about those who may benefit from your support, like a child saving for their first home or a friend in need of financial assistance.
Make sure you can afford to make the gift and that it won't leave you short of ready cash.
Step 2: Calculate your Exemption
To gift £9,000 immediately free of IHT, you will need to effectively utilise both the current, the previous and the next year's exemptions. Let’s break it down:
Current Year Exemption (2024-25): £3,000
Carried Forward Exemption (2023-24): £3,000 (if unused last year)
This allows you to gift £6,000 in total from exemptions alone, between now and 5th April. On the 6th April, we'll be in the new tax year, which means you'll have a refreshed exemption allowing you to give a further £3,000.
It's important to note that the exemption is per person making the gift, not per recipient. So for a married couple, a total of £18,000 could be given away using the method above, ie £9,000 from each person.
Step 3: Make the gifts
After calculating your exemptions, proceed to make the gifts. Neither you nor the recipient need to report the gifts, but keeping a written record of these transactions is highly recommended. This documentation serves as proof should any questions arise regarding your use of the IHT annual exemption.
A simple way to record your gifts is by maintaining a spreadsheet that includes:
Recipient’s name
Amount gifted
Date of transaction
Any relevant notes
Step 4: Use your exemption each year
Make it a habit to assess your gifting strategies every year. Regularly utilising your annual exemption of £3,000 allows for steady wealth transfer over time, helping to minimise the potential IHT liability of your estate. By consistently giving, you support your loved ones while reducing the eventual IHT burden.
Example - David and Fiona
David and Fiona have two Grandsons, Adam and Matthew, who are planning to buy their first homes in the coming years. David and Fiona haven't made any gifts in recent years. They have some spare cash available and decide they would like to help Adam and Matthew with their purchases. They decide to make gifts as follows:
As a result, Adam and Matthew will each receive £9,000 from their Grandparents over the next few weeks. David and Fiona will save £7,200 in IHT, and they'll be able to enjoy seeing their Grandsons settle into their first homes.
Considerations for Larger Gifts
The IHT annual exemption may not accommodate larger gifts that exceed the limit. In such cases, consider exploring other exemptions such as gifts made for marriage or civil partnerships. Current rules allow up to £5,000 from parents and £2,500 from grandparents to be given as wedding gifts that are immediately free of IHT. Furthermore, an additional £1,000 may be given to anyone upon marriage, even if they're not related.
Although the annual exemption is fairly simple, understanding the seven-year rule is essential. Any gifts made within seven years prior to a donor's death may be subject to IHT, depending on their value and the remaining nil-rate band. Estate planning can be complex, so do get in touch if you'd like help with this.
Final Thoughts
Utilising the IHT annual exemption is an effective strategy for gifting and estate planning. By strategically using your annual exemption, you can provide valuable financial support to your loved ones without incurring additional tax costs.
The £3,000 allowance may seem too small to bother with in the context of an estate that is subject to IHT. But using the above strategy to get started, and keeping up the gifts over 10 years for example, you can give away £33,000 free of IHT, or £66,000 for a couple. Saving a worthwhile £13,200 or £26,400 respectively in IHT in the process.
Most importantly, you get to enjoy seeing your gift being put to good use during your lifetime, and hopefully make a welcome difference to the recipient.
Best wishes,
Michael Roberts FPFS
Chartered Financial Planner and Director
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