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What gifts are free of Inheritance Tax (IHT)?

Inheritance tax is normally payable upon the death of an individual, but can also be due during the lifetime of an individual when they make a chargeable lifetime transfer.

However there are a number of lifetime gifts that can be made free of IHT, including:

  • Small gifts of up to £250 per person
  • A number of gifts made in consideration of marriage:
    • £5,000 from the parent of a party to a marriage/civil partnership
    • £2,500 from a remote ancestor of a part to a marriage/civil partnership
    • £2,500 from a party of the marriage/civil partnership
    • Each individual has an annual exemption from IHT for the first £3,000 of gifts made per annum
    • If you have not used the previous year’s annual exemption, this can also be carried forward for one year, so that total annual exemptions of £6,000 are available

In addition to the above, individuals also have a nil rate band, which is a limit up to which IHT is not payable.  The limit for the 2014-2015 tax year is £325,000.

Finally, in some situations, relief is available which can reduce the inheritance tax charge down to as low as 0%.  This generally falls under business property relief and agricultural property relief.

The rules on IHT are complex; therefore taking professional advice is always advisable.