How money can be given away inheritance tax-free

We would all like to ensure our family, beneficiaries and loved ones receive as much as possible when we die; after all, handing over a large amount of cash to the taxman isn’t a particularly palatable thought. Let’s take a look at a few inheritance tax exemptions that it is important to be aware of.

The Gifts from Income Exemption

Instead of allowing cash to build up in your bank, this exemption allows you to make regular gifts out of your income to your loved ones free of inheritance tax. There are some rules to follow when considering this; for example, the gifts must come from income rather than capital. You must also ensure you are not left unable to meet your normal outgoings, and the gifts made must be regular rather than one-offs. You could consider contributing to a child or loved one’s mortgage or rent payments, for example, or helping with a grandchild’s school fees.

The Nil Rate Bands

The nil rate band is £325,000 per individual, and any unused portion can be passed to a spouse or civil partner. Estates within this band are exempt from inheritance tax. Additionally, a residence nil rate band of £175,000 applies when a main residence is left to a direct descendant; however, this decreases by £1 for every £2 by which the estate exceeds £2m and isn’t available for estates of over £2.35 million. Unused portions can be claimed by the spouse or civil partner’s estate.

Inter-spouse Exemption

Assets left to your spouse or civil partner are also exempt. Unused nil rate bands can be transferred to boost your spouse’s financial security and for tax efficiency purposes. Both partners’ bands can be used when passing on the estate after the surviving spouse’s death.

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Other Exemptions

There are several other exemptions that you can consider. Choosing a professional accountant to assess your financial situation will help you to determine whether these are right for you.