Inheritance Tax: How Much Can You Give Children Without Giving Your Hard-Earned Money? Personal Finances | Finance
The complexity of the UK inheritance tax system means that it is very easy to make mistakes when it comes to donating. Statistics show that Â£ 50 billion is returned annually to HM Revenue and Customs (HMRC) in the form of payments that could be avoided.
Hundreds of taxpayers are caught off guard each year when it comes to paying Inheritance Tax (IHT) with figures showing the average person loses Â£ 250,000 apiece by paying ‘unnecessary’ taxes on gifts .
Granted, much of this happens when people donate goods, but they are also caught off guard when it comes to giving smaller amounts of money.
With Christmas just around the corner, there’s no better time to revise the rules.
The annual exemption rule allows an individual to ‘donate’ up to a total of Â£ 3,000 per tax year without paying tax, but there are ways to give more and avoid an HMRC bill. .
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However, they could also give more if their loved ones have wedding plans for the coming year.
Emi Page, a partner at the Winckworth Sherwood law firm, explained how people can get the most out of these tax breaks.
She said: “A parent can give their child up to Â£ 8,000 – a gift of Â£ 5,000 made in return for marriage plus using her annual exemption of Â£ 3,000.
“Or possibly up to Â£ 11,000 if they can carry over an unused full annual waiver from the previous tax year.”
Ms Page added, âSo it is important to be aware of the tax implications if you are considering making a large donation to someone who is getting married or entering into a civil partnership.
âTake a close look at the exemptions and their limits so that your donation can be made in the most tax efficient way possible. “
Meanwhile, when it comes to passing on assets, Britons lose even more money in avoidable taxes.
Geoffrey Todd, partner at Boodle Hatfield, said hundreds of people get tricked each year when passing assets on to the next generation.
Mr Todd said: “On average, they shed over a quarter of a million pounds each by falling into an avoidable trap,” he said.
âUnfortunately, this can cause beneficiaries to face high bills, so it is crucial to seek professional advice before including the family home in estate planning.â
People should also remember to take the seven year rule into consideration.
Assets can be donated without incurring IHT provided the donor survives at least seven years after making the donation.