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Find out more'Could our family holiday lead to an inheritance tax bill?'
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Joanne has 20 years experience working in a bank and is a qualified mortgage adviser as well as financial adviser. She helps with pension, mortgage, tax and general banking/savings queries.
I am semi-retired and wondering what gifts I can make to my grandchildren without these being subject to inheritance tax.
If I pay for a family holiday, which we will also be going on, will this be exempt?
Gordeon from West Yorkshire
'A free holiday still counts as a gift
Joanne Padilla, Which? money expert, says…
Unfortunately, paying for the holiday is likely to be considered a gift by HMRC.
That might not be an issue if you live for another seven years, in which case the holiday would not be liable for inheritance tax (IHT). If you die before then, the holiday’s value could be counted as part of your estate.
Again, this may not be a problem if your estate is likely to be worth less than the nil-rate band (£325,000 for an individual, £650,000 for a couple).
If you plan to leave your home to direct descendants you’ll also benefit from the residence nil-rate band of £175,000. So your estate would need to be worth more than £500,000 (£1m for couples) before any IHT is due.
If you live for another seven years the holiday would not be liable for inheritance tax
Even if your estate does exceed those allowances, the holiday may be covered by your annual gifting allowance of £3,000 (or £6,000 as a couple). If unused, the £3,000 allowance can be carried over, but for one tax year only, letting you gift up to £6,000.
If it’s a smaller trip and you spent less than £250 per person, this could be covered by the small gifts allowance. This can only be used for gifts to people who haven’t also benefited from your annual allowance in the same tax year, meaning that any other gifts you give those family members during the same tax year could be taxable.
Our inheritance tax calculator can help you to work out if your estate could be at risk of a bill.
- Find out more: Inheritance tax planning and tax-free gifts
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