Most people have heard of various exemptions and reliefs relating to inheritance tax (IHT), says Tax Tips & Advice. But less well known are “exclusions”. These are gifts that are completely ignored for IHT purposes and include ‘dispositions for family maintenance’.
According to S.11 of the Inheritance Taxes Act, these include gifts to “your, or your spouse’s, children as long as they are under 18 or, if over, in full-time education”; “your, or your spouse’s, parents” and “any relative of yours, or your spouse, that is dependent on you for care”.
Let’s say you want to educate your child privately. If you pay the fees as you go along, should you die unexpectedly, any money earmarked for those fees sitting in a bank account will be subject to IHT. Put the money or assets in a trust earmarked for their maintenance and education, on the other hand, and there will be no IHT to pay.
A similar situation can arise with elderly parents and nursing home fees. This time, the gift should be made directly. “The key is to shift the capital from your estate in a lump sum.”