Sunir Watts explains how to make use of Inheritance Tax gift exemptions in ThoughtLeaders4 Private Client magazine

Sunir’s article appeared in ThoughtLeaders4 Private Client magazine, February 2024 (page 11), and can be found here.

Sunir Watts, Partner in our Private Client department, outlines the practical use of inheritance tax (IHT) gift exemptions.

He begins by explaining the distinction between potentially exempt transfers (PETs) and lifetime chargeable transfers (LCTs). PETs, such as outright gifts to individuals, are only exempt from IHT if the donor survives for seven years after making the gift. In contrast, gifts to trusts are considered LCTs and are immediately subject to a 20% IHT charge on amounts exceeding the nil-rate band (NRB), which is currently frozen at £325,000 until April 2026.

Sunir goes on to detail how trusts are further impacted by the relevant property regime, which imposes IHT charges every ten years and upon capital distributions. He highlights the importance of understanding the interaction between lifetime gifts and the NRB, especially on death, when the NRB is first applied to gifts made within the last seven years. If the NRB is not fully used by these gifts, the remaining balance can be allocated between the deceased’s estate and any qualifying trusts. Notably, gifts to a surviving spouse or civil partner are exempt, and any unused NRB can be transferred to the survivor’s estate.

Finally, Sunir discusses taper relief, which reduces the IHT rate on gifts made three to seven years before death, but only if the total value of gifts exceeds the NRB. He emphasises the strategic value of planning lifetime gifts to minimise IHT liability, making full use of available exemptions and reliefs. His article serves as a clear and practical guide for individuals looking to manage their estates efficiently and ensure that more of their wealth is passed on to intended beneficiaries.

Read the full article on the ThoughtLeaders4 Private Client magazine website [external link].