Don’t miss out on IHT exemptions

IHT planning

The trick to successful inheritance tax (IHT) planning is simple: give away as much of your wealth as you can afford to as soon as you can afford to. There’s no IHT to pay on the gifts as long as they are to an individual and you survive at least seven years from when you make the gift. If you don’t survive that long the whole gift becomes chargeable to IHT. The good news is that there are a few exemptions that make gifts IHT free without the seven-year wait.

Annual exemption

You can give away up to £3,000 in cash or assets every tax year to anyone you like. If you didn’t do this last year you can add the unused exemption to this year’s, meaning that you can give away up to £6,000 on or before 5 April 2025. The £3,000 can be to one person or smaller amounts to many. However, there’s a different exemption that can apply if the value of the gift is no more than £250.

If you’re married or in a civil partnership, your partner has the same exemptions as you. Therefore, you could make IHT-exempt gifts of up to £12,000 in one year, assuming neither of you has used your annual exemption for 2023/24 or 2024/25.

Small gifts

You can further reduce your estate by making IHT-exempt annual gifts of £250 to as many people as you like. But take care because a gift of £251 will mean the whole amount, not just the £1, becomes chargeable to IHT if you die within seven years.

The small gifts exemption can’t be used in combination with the annual exemption for gifts to the same person, e.g. if you gave £3,000 to Henry on 1 May 2024 and gifts of £250 to Henry, Will and Sarah on 31 March 2025. The £3,000 gift to Henry is covered by your annual exemption but the £250 gift to him is not. The gifts to Will and Sarah are covered by the small gifts exemption.

Gifts in consideration of marriage

The amount of the exemption for gifts for marriage depends on your relationship to the recipient. The exempt amount varies between £1,000 and £5,000. Where the value of the gift exceeds the exempt amount, only the excess is liable to IHT if you don’t survive seven years (see The next step ). If you haven’t used your annual exemption for the year you make the marriage gift, it can be used to reduce the excess liable to IHT.

If you’ve used your annual exemptions and want to give away more, there’s another exemption that might apply but the conditions are trickier than for those already mentioned. It’s called the gifts out of income exemption.

The key to making sure your estate benefits from the IHT exemptions is good record keeping. Keep a record of all your gifts: amounts, dates and recipients, and file it where you know your executors will find it.