THE IHT ANNUAL EXEMPTION – USE IT OR LOSE IT!
Although not particularly generous at £3,000 per donor per annum if this annual IHT exemption is not used by 5 April it is lost, although it is possible to carry the allowance forward one year if unused.
GIFTS OUT OF INCOME ARE NOT TAKEN INTO ACCOUNT FOR IHT
A more generous inheritance tax exemption applies where the donor can prove that he or she is not transferring capital but is making gifts out of their income. There are detailed conditions for this exemption to apply requiring records to be kept of income and expenditure in order to prove that there is sufficient surplus income each year to make regular gifts to the beneficiaries. We can of course assist you in keeping the necessary records to satisfy HMRC.
CERTAIN GIFTS CAN HAVE CAPITAL GAINS TAX CONSEQUENCES
Although there will be no CGT on gifts of cash there may be CGT to pay where the gift comprises shares or other assets. This is because the transaction will generally be deemed to take place at market value between connected persons.
The amount of the gain would normally be determined by comparing the market value with the original cost of the asset gifted.
Where the amount of this gain is within the annual CGT allowance (currently £11,700) then there would be no CGT payable.
Where the gift comprises shares in a trading company or other business assets it may be possible for donor and recipient to sign an election to hold over the gain so that no CGT is payable by the donor at the time. The effect of such an election is that the recipient of the asset will take over the donor’s original cost for subsequent disposal. |
