The following gifts may be made without worrying about inheritance tax:

The Annual Exemption, which is currently £3,000 per tax year, per individual donor (not the person receiving the gift, or ‘donee’). If last year’s has not been fully used, any remaining exemption may also be used. For example, a couple that has not used either last or this year’s exemptions, could gift up to £12,000 in total by using four annual exemptions this year.

Small gift – £250 per donee, but they cannot be used in conjunction with the annual exemption and there is no limit to the number of individual donees who can benefit.

Gifts in consideration of marriage/civil partnership – each tax year, the maximums are £5,000 if gifting to a child, £2,500 to a grandchild or great-grandchild and £1,000 to anyone else.

To claim this exemption, the gift must be made on or before the date of marriage or civil partnership and not afterwards. It can be combined with the annual exemption. If the marriage does not take place, the relief is denied and, if not covered by another exemption, the gift is a Potentially Exempt Transfer (PET) and potentially taxable when the donor dies.

Gifts of any amount to a spouse or civil partner.

This is called the ‘spousal exemption’ and any amount may be transferred either during their lifetime or upon death.

Charities – full exemption on lifetime gifts and upon death. Also, the inheritance tax rate reduces to 36% where at least 10% of the net estate is left to a registered charity upon death

Gift Aid – donating through Gift Aid means charities and community amateur sports clubs can claim an extra 25p for every £1 given.

The tax could have been paid on income or capital gains. The charities being supported must be told if you stop paying enough tax. If you pay tax above the basic rate, the difference between the rate you pay, and basic rate may be claimed on your donation. 

Wills and lasting powers of attorney (LPAs)

It is a good idea to consider what your will says before gifting to make sure that the proposed gift does not disturb your intentions upon death.

Having a properly drafted LPA for property and financial affairs, with appropriate preferences and instructions, may allow your attorneys to continue to make payments on your behalf in circumstances where you have lost mental capacity, without first having to obtain an order from the Court of Protection.

Top three tips

• Take professional advice from a financial planner who is also a registered STEP qualified trust and estate practitioner.

• Properly consider what you are attempting to achieve because there may be a better way that does not involve gifting.

• Take a holistic approach and base your decisions on a well thought out and robust financial plan before implementing gifts, particularly where significant amounts are involved.

Robin Melley TEP, Founder and Director, Matrix Capital, Chartered Financial Planners