Should I gift my wealth to my family to avoid inheritance tax?

Well-known television presenter Anne Robinson was recently covered in the national press detailing how she has plans to help her family to avoid paying inheritance tax on her £50m fortune after she dies.

Our wealth management team explains the reasons behind her decision and what risks are still apparent in taking this approach to avoid inheritance tax.

Mother of one and grandmother of two, Anne Robinson revealed in a recent interview with Saga magazine that she has already ‘spread’ her estimated £50 million fortune across her family members to save her assets from going to the ’taxman’.

In the UK, inheritance tax is charged at 40 per cent on estates worth over £325,000 with a higher threshold for homes that are passed on to direct descendants such as children or grandchildren.

Despite her high-profile decision, Anne Robinson runs the risk of inheritance tax still being paid on her estate, this is due to UK’s ‘seven-year rule’ that states if a beneficiary receives an inheritance gift less than seven years before the bestower’s death they still pay inheritance tax.

What is inheritance tax?

Inheritance tax (IHT) is a tax applied to the value of someone’s estate after they die. It applies to all their possessions, property and money.

Here’s a quick breakdown of how IHT works:

  • There’s a tax-free threshold of £325,000 currently. This means if your estate is worth less than this amount, no inheritance tax is due.
  • Any amount above the threshold is taxed at 40 per cent. But there’s a reduced rate of 36 per cent if you leave at least 10 per cent of your net estate to charity.
  • If you leave your home to your children or grandchildren, the tax-free threshold can be increased to £500,000.

Example. Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40 per cent of £175,000 (£500,000 minus £325,000). In Anne Robinson’s case – with an estimated estate of over £50m that could lead to over £20m in IHT payments.

There is also normally no Inheritance Tax to pay if you leave everything above the £325,000 threshold to your spouse or civil partner. Anne Robinson is presently unmarried, and hence has no spouse or partner to pass on her wealth and assets.

Are there any exemptions from Inheritance Tax?

There are a number of exemptions what are important to note:

  • Annual exemption: This is the most common exemption. You can give away up to £3,000 worth of gifts each tax year (between April 6, and April 5, the following year) without them being added to the value of your estate for inheritance tax purposes. You can give this amount to one person or split it between several people. Any unused allowance can be carried over to the next tax year, but only for one year.
  • Small gift allowance: You can give as many gifts of up to £250 per person as you want each tax year, as long as you haven’t used another allowance (like the annual exemption) on the same person in that tax year. These are typically meant for occasional gifts like birthdays and Christmas.
  • Normal income gifts: Gifts made from your normal income after reasonable living expenses are generally exempt, if they don’t affect your standard of living.
  • Wedding or civil ceremony gifts: Gifts of money or assets to your child or grandchild on the occasion of their wedding or civil ceremony are exempt, with a limit of £1,000 for other guests and £2,500 for grandchildren, and £5,000 for your child.
  • Payments for living costs: Payments to help with another person’s reasonable living costs, such as rent or mortgage payments, are typically exempt from inheritance tax.
  • Donations to charities and political parties: Gifts to registered charities and political parties are exempt from inheritance tax.

Taking the right measures to achieve maximum tax efficiency

The most important consideration to make with regards to Inheritance Tax planning is to plan early and seek professional advice. WHN’s legal and financial advisers will work together to ensure your estate planning considers both legal and financial aspects for maximum tax efficiency.

Here is a breakdown of the specialist advice WHN can provide:

Legal advice

  • Preparing a will: A well-drafted will minimises disputes and ensures your wishes are followed, reducing the chance of legal fees that can eat into the estate.
  • Inheritance Tax planning: Our tax specialists can advise on strategies to reduce your estate’s value for tax purposes. This may involve using tax-efficient trusts or gifting assets during your lifetime.
  • Setting up a trust: Trusts can be used to transfer ownership of assets while you’re alive, reducing the value of your estate.

Financial advice

  • Financial review: This involves assess your assets and liabilities to identify tax-saving opportunities. This might include recommending investments with inheritance tax benefits.
  • Asset restructuring: Our advisers will suggest ways to reorganise your assets to minimise their inheritance tax burden. For instance, recommending using your tax-free allowance each year by gifting assets.

Please note: the Financial Conduct Authority does not regulate taxation advice. You should always seek professional advice on your particular circumstances.

WHN’s wealth management team can help you devise the most effective Inheritance Tax Plan to meet your specific needs. As independent financial advisers, our team has the freedom to offer options from the whole of market thereby giving you choices that are right for you.

To discuss any aspect of wealth management please contact our team by emailing or by calling 0800 808 9778.