Current law states that each individual can gift up to £3,000 per year without Inheritance Tax (IHT) consequences. If an individual makes a gift in excess of £3,000, this gift potentially becomes taxable for IHT provided the individual dies within seven years of making the gift and the value of their estate (including the original gift) exceeds the IHT threshold (currently £325,000).
The gift allowance has been set at £3,000 since the mid 1980’s. Since then the value of an individual’s estate and wealth in general has grown with no sign from the Government that this will change. Today we find more estates liable for IHT. Ideally, as the economy grew (pre-recession of course) the Government should, in the spirit of fairness, have increased the gift allowance (which it did not) and it is now clear in this current economic climate that the Government will not be inclined to be so generous.
So what can be done? Other than the above gift allowance, individuals can give what are known as ‘small gifts’ which can be up to £250 to any number of individuals (who have not received any part of the above £3,000 gift).