What and how much you wish to give your children or other members of your family is completely up to you.
But to ensure that it’s tax-free, it’s important to plan when to make that gift.
Simply put, so long as you live for more than seven years after you make this gift, your children or family won’t have to pay Inheritance Tax on your gift when you die.
However, any income or gains made from this gift could have tax implications for the beneficiary, for example, Capital Gains Tax.
But if you don’t live more than seven years after you’ve made the gift, they might have to pay Inheritance Tax.
When the gift is first made, it’s called a Potentially Exempt Transfer as, assuming you live for a further seven years, there won’t be any IHT due on it. If you die within seven years, it’s called a Chargeable Transfer.
This means if you’re thinking about giving away money or assets to your family and friends to reduce Inheritance Tax, it’s very important you make a record of:
- what you gave
- who you gave it to
- when you gave it
- how much it’s worth.
This will make it easier for the executor of your estate to work out during probate what parts of your estate are liable for tax.