British giving away inheritance before they dieNew research shows greater effort to avoid tax

03 April 2010

British families are increasingly passing on their inheritance to relatives before they die, in a bid to reduce their tax liability, according to new research by insurance giant Aviva.  

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Some 46% of people said they had received a 'pre-inheritance' gift, compared to only 37% who said they had received a traditional inheritance after a relative had died.

Tax-exempt gifts

Some lifetime gifts are automatically free from IHT. These include small gifts of up to £250, gifts that come out of an individual's £3,000 annual tax-free allowance and wedding or civil partnership gifts (up to £5,000 from parents, £2,500 from grandparents and £1,000 from other benefactors).  

Other gifts made during your lifetime are known as potentially exempt transfers (PETs) and normally escape inheritance tax if you live for seven years after they are made. This means than an early 'pre-inheritance' gift may avoid IHT at 40% and, by reducing the overall value of your estate, could help your heirs avoid IHT altogether. 

Aviva also asked people how they would use any inheritance they received. Most said they would use it to pay off debts (including student debts) or invest it for the future. However, a sizeable minority (21%) said they would use it for a holiday.    

Inheritance tax limits

Alistair Darling recently announced that the threshold for IHT will remain at £325,000 for 2010-11 and the next four years. Married couples and civil Partners can effectively claim a 'double allowance', with the first partner's unused nil-rate band being passed to the survivor on death. Lifetime gifts that are made outside the seven year period are no longer counted as part of your estate and normally don't count for IHT purposes.

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