Smart Gifting & Legacy Planning – A Practical Guide from SJC, Chartered Accountants

Gifting is one of life’s simple joys – and when it’s paired with effective inheritance tax (IHT) planning, it becomes even more rewarding. At SJC, Chartered Accountants, we’re here to help you navigate the rules and opportunities around gifting so you can support loved ones and causes you care about, while also making smart financial decisions.

Making Tax-Free Gifts

Annual Exemption

You can gift up to £3,000 each tax year without it affecting your estate’s IHT liability. This can be given to one person or split between several. If unused, the allowance can roll over for one year – meaning a couple could gift up to £12,000 in a single year.

Small Gifts

You can give as many individual gifts of up to £250 as you like – ideal for spreading some joy across extended family or friends, especially younger generations.

Wedding Gifts

Special celebrations come with their own allowances:

·      £5,000 per parent

·      £2,500 per grandparent or more distant ancestor

·      £1,000 from other individuals

These gifts must be given before or on the date of the wedding.

Larger Gifts & The Seven-Year Rule

If you’re considering a larger gift, the timing is key. To be fully exempt from IHT, you must live at least seven years from the date of the gift. If you survive three to seven years, taper relief may apply to reduce the IHT due. Remember, such gifts could still use up part of your nil-rate band if you pass away within the seven-year period.

Gifting from Surplus Income

If your regular income exceeds your living needs, you can make tax-free gifts from this surplus without waiting out the seven-year rule. This must be part of a consistent pattern and properly documented – setting up a standing order or direct debit is a great way to do this. Keeping accurate records is essential to prove the surplus and regularity to HMRC.

Property & High-Value Assets

Thinking of gifting your home, land or rental properties? Unfortunately, you can’t just “give them away” if you continue to benefit from them. For example, if you gift your home but still live there rent-free, HMRC will not view the transfer as effective for IHT purposes. You’d need to pay full market rent to the new owner to make it valid.

Additionally, property gifts may trigger capital gains tax, so it's essential to get tailored advice before proceeding.

Using Trusts

Trusts can be an excellent tool for those wanting to retain some control over gifted assets, especially if you're concerned about safeguarding wealth for future generations. With proper planning and professional drafting, trusts can protect assets in the event of divorce, bankruptcy, or for vulnerable beneficiaries.

Giving to Charity – During Life or Through Your Will

Charitable gifts are completely exempt from IHT – whether you give during your lifetime or include a donation in your will. You can choose to leave:

·      A fixed cash amount

·      A percentage of your estate

Fixed sums give certainty but may lose value over time due to inflation. Consider index-linking such gifts to preserve their impact.

Alternatively, gifting a percentage of your estate ensures the amount adjusts naturally with your assets. If you’re splitting your estate between charities and family, it's vital to have your will professionally drafted to ensure fair and tax-efficient distribution.

A Lower Tax Rate for Charitable Giving

If you leave at least 10% of your net estate to charity, your estate may qualify for a reduced IHT rate of 36% instead of 40%. It’s a smart way to support good causes while reducing the tax burden on your estate.

At SJC, Chartered Accountants we can help you explore gifting strategies tailored to your circumstances – whether you're planning for the future, considering trusts, or thinking of supporting a charitable cause. For expert advice on legacies and IHT planning, get in touch with our friendly team today.