With Celebrity Traitors gripping the nation, it’s easy to imagine Inheritance Tax (IHT) planning as a less glamorous but equally strategic version of the game. The stakes are high; the moves are many and the ultimate goal is survival – only this time it’s your wealth you’re protecting from elimination. Think of it as a long-term strategy game where good planning and timing help you stay one step ahead of the system’s surprises.
Know the Game: The Types of Lifetime Gifting
In the world of IHT, not all moves are equal. Some are innocent ‘Faithful’ plays – safe and straightforward. Others are bold ‘Traitorous’ tactics – risky but potentially game-changing. Under the current rules the following gifts exist:
1. Exempt Gifts: The Faithful’s Safe Play
These are your most trusted allies. You can gift up to a total of £3,000 per tax year without it ever counting towards your estate for IHT purposes. Additionally, if you don’t use your allowance one tax year, it can be rolled over to the next – but only for one tax year.
Small gifts of up to £250 to individuals are also exempt, so long as you are using no other allowance for that individual benefiting. Regular birthday and Christmas presents are safe – as are gifts for weddings. Although the wedding gift rules differ depending on the recipient of your gift.
All of these are currently exempt and unlikely to arouse suspicion from the taxman in the turret.
2. Potentially Exempt Transfers (PETs) – The Strategic Gambit
These are your bold, risk-taking plays – high reward but not without danger. PETs can be of any amount, to any individual, but you must survive seven years after making the gift to fully escape IHT. Fall short of the seven-year mark, and a gift made within three years of death is charged at the full 40% IHT rate, while gifts between three and seven years may qualify for taper relief.
In short play this card too late in the game and it could expose your entire strategy.
3. Chargeable Lifetime Transfers (CLTs) – The Secret Move
These are trickier plays – moves that don’t fit neatly under the PET rules – and can be immediately charged at a rate of 20% IHT. Transfers into certain trusts may be exempt but the rules are complex and require careful planning. Think of these as your covert missions: powerful but best handled with expert guidance.
Common Pitfalls: Avoiding Betrayal in your Plan
Many people’s biggest asset is their home, and it’s tempting to gift it early to reduce your taxable estate. But beware of the ‘gift with reservation of benefit’ pitfall– if you continue to live in the property, the taxman will treat it as if you never truly gave it away. A classic case of appearing Faithful while secretly keeping hold of the prize.
Secondly, poor record keeping can undo even the most careful strategy. Without clear documentation, your Executors may struggle to prove the honest nature of your gifts – leaving the taxman to call your bluff and claim victory.
Take Control: IHT Advice in Scotland
In Celebrity Traitors, only those who balance trust, careful planning and timing make it to the end. The same is true for Inheritance Tax planning. Play your cards wisely, know when to act, and above all ensure smart planning – not surprise – shape your legacy.
Contact our experienced Private Client Team today to discuss your IHT planning needs and take control of your future with confidence.
