making gifts to reduce IHT

Ignoring the chargeable transfer regime for gifts into discretionary (and now most other) trusts, lifetime gifts allowed by the Revenue for the purposes of reducing an ultimate IHT liability fall into two broad categories:

Those gifts which once made are immediately free of IHT; and

Gifts that will be free of IHT only if the giver survives a seven year period. These gifts are called potentially exempt transfers (PETs).

There are rules that generally prohibit the giver retaining or receiving any benefit from a gifted asset.

The first category of gift is potentially more valuable than a PET because there is no requirement for the giver to survive a seven year period. Included within gifts that have immediate relief from IHT are:

• Gifts of up to £250 per tax year to an individual who receives no other gift from you in that period;

• Limited gifts in advance of marriage (the amounts are higher for gifts made to your partner, children or grandchildren);

• The redirection of any part of an inheritance within two years of the death of the person who left you the inheritance;

• Gifts of up to £3,000 in total per tax year from your capital; and

• Gifts from your net income which you do not otherwise spend. If correctly documented these gifts can include accumulated income remaining as cash that you have not spent in earlier years.