Most people know of the common Inheritance Tax allowances and loopholes: giving to a spouse or a charity, giving no more than £3,000 per tax year between others, or giving more than £3,000 but living for seven years.
However, there is a little-known and rarely used IHT loophole that does not have a set limit and does not require you to live for years afterwards.
This is known as ‘Gifts for the Maintenance of Family’ and is found in section 11 of the Inheritance Tax Act 1984.
IHT Exemption
Any gift that qualifies under this loophole is completely exempt from Inheritance Tax.
If HMRC decides that the gift was larger than reasonable, the part that was reasonable is still exempt.
The basic part of the exemption allows someone to maintain their spouse or civil partner. It also allows a parent or step-parent to pay for a child’s education up to the age of 18 or until the end of full-time education (e.g. paying university tuition and accommodation costs).
The advanced parts of this loophole can actually be more useful.
Firstly, if a child is not in the care of their parents (for example, living with grandparents), then the person caring for the child can also benefit from the same exemption if they make a gift to maintain that child.
Secondly, the exemption can be extended to certain adult relatives. These are the parents of you or your spouse, or other relatives if they are incapable of maintaining themselves due to old age or disability. Only the amount that is reasonable for their care and maintenance will be exempt from Inheritance Tax.
Most importantly, the exemption is not claimed until the death of the person making the gift, so Executors could retrospectively claim the exemption even if nothing was set down in writing when the gift was made.
IHT Legal Advice
In some cases, an outright gift is not needed, as particular types of trust can qualify for the exemption.
There are a lot of criteria to meet and it is vital to have evidence, so this is an area that needs specialist advice.
In addition, any large gifts or trusts set up in your lifetime are likely to affect your Will.
If you are likely to be helping a relative with care costs or education costs or are the Executor of an estate where the deceased provided such support, why not book an appointment with our private client team to find out more?
Call our Arundel office on 01903 927055 or email info@monangozzett.com to book an appointment with Stephen or speak to one of his team.
If you would like to speak to our expert legal team about this, or any related subject then please contact our team by phone on 0207 936 6329, Email or by completing our Quick Contact Form below.