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.
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.
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.
Which? Money when you need it
You can follow @WhichMoney on Twitter to keep up-to-date with our Best Rates and Recommended Provider product and service reviews.
Sign up for the latest money news, best rates and recommended providers in your newsletter every Friday.
Or for money-saving tips, and news of how what's going on in the world of finance affects you, join Melanie Dowding and James Daley for the Which? Money weekly money podcast
For daily consumer news, subscribe to the Which? news RSS feed here. And to find out how we work for you on money issues, visit our personal finance campaigns pages.