Tax Tip of the Month
May 2010
Use it - don't lose it!
What we are talking about here is the inheritance tax (IHT) annual exemption.
Held for the umpteenth year running at £3,000 per annum, which is no doubt a lot less in real terms than it was when it was first set at this level, the merit of the IHT annual exemption is that any gifts within this amount are entirely exempt from IHT, even if you don’t survive seven years.
There’s a lot of confusion about this point, incidentally. Many people think, wrongly, that £3,000 is the maximum you can give away. Not true: you can give away unlimited amounts without paying any IHT: providing you survive seven years.
But none of us knows how much longer we have, of course, and it’s certainly a very sensible thing to use up this annual exemption regularly. If you don’t use it, in a given year, you can carry it forward one year, so that in that subsequent year you can give away £6,000. But beyond that, the exemption can’t be carried forward and is lost.
While on the subject, if you are a couple, make sure that you use both spouses’ annual exemptions. It may be necessary, in order to do this, to move money around between the two of you a bit. But providing you remember to do this, this generally isn’t a tax problem.
