A lifetime gift is made during a person’s lifetime rather than on death. There are a number of reasons for making a lifetime gift – for example, you may wish to help a child with their first property or assist a loved one with care home fees.
Lifetime Gifts & Inheritance Tax Rules
Lifetime gifts to spouses or civil partners are free from inheritance tax.
A gift that is made ‘absolutely’ (i.e. without any strings attached) to anyone other than a Spouse or Civil Partner, will not be included in a person’s Estate if they survive for 7 years from the date of making that gift.
If the person making the gift dies within that 7 year period, the position changes and Inheritance Tax will be charged, but at a reduced percentage.
Gifts to charities or political parties
Gifts to Charities or Political Parties are exempt from inheritance tax, both during a person’s lifetime, and on their death.
Business and Agricultural Property Relief
Gifts of business property or agricultural property may attract Relief at either 50% or 100% depending upon compliance with special conditions and the rules of the Revenue at that time.
Lifetime Gifts & Restrictions
As a Lifetime Gift must be made ‘without reservation’, the donor can take no future benefit from that gift. For example, if the gift is of a property, the donor can’t live in, benefit from income of, or take holidays in that property.
If the gift is a sum of money, the donor must not retain any income from that gifted sum.
Exemptions from 7 year rule
Certain lifetime gifts are exempt from the 7 year rule however these exemptions are subject to change depending on tax year or the value of the gift itself:
• Your annual gift allowance of £3,000.
• Annual small gifts a maximum of £250 can be made to as many beneficiaries as you wish.
• Marriage gifts. Each parent may gift £5,000 when their child marries. Each Grandparent may gift £2,500 and other individuals may gift £1.000.
• Regular gifts from income provided this does not reduce your expendable income to a level adversely affecting your standard of living (useful for those with large Pensions)