Giving while living can be an incredibly rewarding way to minimise Inheritance Tax (IHT) on your estate.
 
With long-term frozen thresholds, rising asset values, and pension savings soon to become subject to IHT, more families could become liable to the tax.
 
When Inheritance Tax is charged 

Your family will pay IHT at 40% on any portion of your estate that exceeds the nil-rate band of £325,000 (2026/27). This threshold is currently frozen until April 2031.
 
By leaving your home to your children or grandchildren, you could benefit from the residence nil-rate band, worth £175,000 per person (2026/27), increasing your total threshold to £500,000. Again – this is frozen until 2031. The residence nil-rate band is reduced by £1 for every £2 the estate exceeds £2million.

If you’re married or in a civil partnership, you can pass your estate to the surviving partner free of IHT. 

You can also leave any unused allowances to your spouse or civil partner, leading nicely on to…

Tax-efficient ways to gift wealth 

• Annual gifting allowance: You can gift £3,000 each year. You can carry any unused allowance to the next tax year, but you can only carry it forward one year.
• Wedding gifts: Parents and stepparents can give up to £5,000. Grandparents can give up to £2,500, and other relatives and friends can give up to £1,000.
• Small gifts: Give as many small cash gifts (up to £250) as you like – excluding anyone who’s benefited from another gifting allowance in the same year.
• Regular gifts: financial gifts such as for Christmas or birthdays may be exempt from IHT if they form part of normal expenditure, com from surplus income, and don’t affect your own standard of living.
• Gifts to charities or political parties: Passing at least 10% of your net estate to charity could reduce your IHT from 40% to 36%.
• Use a “PET”: A potentially exempt transfer lets you gift as much as you’d like and will only be charged IHT if you die within seven years of making the gift. Taper relief may reduce the tax payable on gifts made more than three years before death.

Read more: 5 generous options for giving while living to reduce Inheritance Tax on your estate

3 key questions that could inform your gifting strategy

Deciding to gift your wealth may be relatively simple, but ensuring you do so tax-efficiently isn’t always straightforward – particularly if you’re planning as a couple.
 
Ask yourself these three key questions:
 
1. Who should make the gift?

If you don’t hold equal assets, it may be more beneficial for the person with the largest taxable estate to make gifts.
 
Remember, married couples or civil partners can gift any sums to one another free of IHT.

2. Is one of you more likely to outlive the other?

If one of you is significantly younger or healthier, it may be wisest for them to give any gifts – particularly if you intend to gift a large lump sum.
 
Alternatively, you could move funds between you before transferring money to your intended recipient.

3. How are your assets held?

How assets are held will change the way they are assessed for IHT. Whether in your own name, through a trust, or within a corporate structure, it may be simpler to gift some assets than others.

While gifting cash is relatively simple, if you need to sell investments to make a financial gift, you might need to time the sale carefully.

Timing may matter more than you might like, so the earlier you start planning, the better.

Keep clear and accurate records 

Giving while living to mitigate IHT is one of the most rewarding ways to ensure more of your wealth stays with those you love.
 
To ensure your planning pays off, it’s important to keep detailed records of gifts you make – for your own peace of mind, for your executors, and to enable HMRC to verify the facts after your death.

There’s no strict rule about what form your notes should take – handwritten or digital works, so do whatever you’ll find easiest.

Each time you make a gift, note down the:

• Recipient’s name
• Relationship you have with them
• Date you gave the gift
• Value of the gift
• Transaction method – cash, bank transfer, or cheque.

Update your records each time you give a gift. Then, keep your records somewhere safe, and tell your executors where to find them.

Get in touch

We’re here to help you understand all your options and create an estate plan that works for you and your beneficiaries. To find out how we can support you, please email info.wp@titanwh.com or call us on 0800 048 0150.

Please note

The information contained in this article is based on the opinion of Titan Wealth Planning and does not constitute financial advice or a recommendation for any investment or retirement strategy.

Please do not act based on anything you might read in this article. Tax treatment is based on individual circumstances and all contents are based on our understanding of HMRC legislation, which is subject to change.

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.

Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.

The Financial Conduct Authority does not regulate estate planning, trusts, or will writing.