Three detailed worked examples with real numbers — the annual exemption, carry-forward, taper relief, normal expenditure out of income, gifts with reservation of benefit, and a record-keeping guide for executors.
This guide is part of ProbateHelp's Inheritance Tax guide cluster. Estimated reading time: 20 min.
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If tax is due on a lifetime gift, the recipient is liable for that tax. It is separate from IHT payable by the estate on assets still owned at death. IHT403 also warns that personal representatives can become jointly liable if the tax remains unpaid one year after death.
Only if you genuinely give it up. If you continue to live there rent-free or keep another benefit, the gift with reservation rules can keep the home in your estate for IHT. Paying a full market rent may avoid the reservation, but it needs proper legal and tax advice.
Yes, the annual exemption can be used for gifts into trust as well as outright gifts. But gifts into most trusts are usually chargeable lifetime transfers rather than PETs, so they may need lifetime IHT reporting and can attract an immediate charge if they exceed the available nil-rate band.
A Potentially Exempt Transfer is usually an outright gift to an individual. It becomes exempt if the donor survives seven years. A Chargeable Lifetime Transfer is commonly a gift into a relevant property trust; it can have lifetime IHT consequences and can also affect the nil-rate band if the donor dies within seven years.
Yes, but only if the gift qualifies for another exemption, such as small gifts, wedding gifts, normal expenditure out of income, spouse or civil partner gifts, charity gifts, or if it is a PET and you survive seven years. The annual exemption is not a cap on giving.
If the gift is taxable after applying the available nil-rate band, the full 40% rate applies in the first three years. Taper relief starts from the 3-to-4-year band and only reduces tax on gifts that exceed the available nil-rate band.
Outright gifts to individuals are usually not reported when made. Gifts into trusts and other chargeable lifetime transfers can be different. After death, the executor reports relevant lifetime gifts on IHT403 where a full IHT400 is required, or keeps the evidence needed to support an excepted-estate position.