Taxpayers saved £30 million inheritance tax bill by gifting
The most recent figures show that taxpayers saved £30 million in inheritance tax (IHT) through gifting last year with many taking advantage of the the £3,000 annual gift allowance.
The annual gift allowance allows taxpayers to gift only £3,000 each year without incurring IHT. However, this figure has now been frozen for 40 years and should be £11,760 if it had kept place with inflation.
Taxpayers can also use the small gifts exemption which allows individuals to make unlimited gifts of £250 each year but this has also been unchanged and if it had increased with inflation then it would be closer to £1,096. This has to be given to different individuals and cannot be accrued, for example with monthly payments to the same beneficiary.
Gifting by taxpayers last year consisted of £25 million through the £3,000 annual IHT exemption and £5 million through the small gift exemption for gifts less than £250.
Individuals that have not used their £3,000 annual gift exemption, can carry this forward to the following year. Taxpayers should note that the annual gift allowance and small gift exemptions cannot be combined and used on the same person.
When the tax was first introduced it was intended to affect only the very wealthy, but the rise in the value of homes, has brought more families into the net in recent decades. Gifting is a legitimate way for families to reduce an inheritance tax bill.
IHT receipts received by HMRC during the tax year 2020 - 2021 totalled £5.4 billion, which was an increase of 4% or £190 million from the tax year 2029 - 2020. The tax haul is expected to reach an all-time high of £6 billion next year according to the Office of Budget repsonsibility.