Pixel

Understanding Lifetime Transfers

Gary Green
Gary Green
March 14, 2017

Today we're going to explain everything about lifetime transfers.

The current Inheritance Tax limit is £325,000 per person.

This is the amount that can be passed on free of IHT as a tax-free threshold. An additional Inheritance Tax main residence nil-rate band (RNRB) will also be introduced from next year.

IHT & Gifts

On top of this, gifts made during a person’s life are not subject to tax at the time. These lifetime transfers are known as Potentially Exempt Transfers (PETs).

These gifts or transfers achieve their potential of becoming exempt from IHT if the taxpayer survives for more than seven years after making the gift. If the taxpayer dies within 3 years of making the gift, then the IHT position is as if the gift was made on death.

A tapered relief is available if death occurs between three and seven years after the gift is made. There are insurance products such as a seven-year term assurance policy that can be used to reduce the amount of IHT due should the taxpayer pass away within seven years of making a gift.

Obviously, there will be an additional cost associated with such insurance policies.

How To Take Advantage

The rules surrounding PETs have resulted in many people wanting to make gifts long before they die. The problem in practice is that they do not want to give up control over the assets concerned. A common example is a person giving their house away but continuing to live in it rent-free. Such gifts are known as ‘gifts with a reservation of benefit’.

HMRC does not accept that a true gift has been made so the ‘gift’ remains subject to IHT even if the taxpayer dies more than 7 years later. These rules can be even more complicated if a trust has been established.

We would be happy to advise those with existing trusts and those considering setting up trusts on the best way forward.

Want to read more about how we can help?

We also look at SEIS investments as a way to exempt assets from inheritance tax while still staying under your control. These investments become exempt from inheritance tax after just two years since they will qualify for business asset relief.

Interested in our services?
Fill in your details and a member of our experienced team will be in touch shortly to discuss your needs.
We adhere to strict GDPR rules and do not reveal or sell your data to any third-parties. For more, please read our Privacy Policy.
Latest Insights
May 5, 2021
How To Reduce Corporation Tax by Claiming Creative Industry Tax Reliefs

Creative Industry Tax Reliefs (CITR) are a collection of Corporation Tax reliefs that allow qualifying companies...

April 27, 2021
National Minimum & Living Wage Considerations For Employers

One of our most important jobs, as employers, is to help control payroll costs. However, one...

April 20, 2021
Employment Allowance: How to Make and Backdate a Claim

The Employment Allowance allows eligible employers to reduce their National Insurance liability. The allowance increased to...

April 20, 2021
How to Get an Overseas Employee Set Up on UK Payroll

Getting an overseas employee set up on UK Payroll can be complex. Employers in the UK...

April 15, 2021
How To File Your Company End-of-Year Accounts For The First Time

If you have recently setup a new limited company or are thinking of doing so, then...

April 13, 2021
How Does Equity Crowdfunding Work? All You Need to Know

In this article, we uncover the ins and outs of equity crowdfunding and the key considerations...

April 8, 2021
Why You Should Set Up a Trust To Cut Inheritance Tax

Inheritance Tax (IHT) is levied on a person’s estate when they die and can also be...

April 1, 2021
The Best Tax-Efficient Options To Pay Yourself As A Business Owner

Most director shareholders want to ensure that they pay the combined lowest rate of tax possible...

March 29, 2021
Chancellor Warns Businesses to Keep Offices – But Remote Working Is Here to Stay

Despite the UK's 'work from home' guidance likely to come to an end in late June,...

View Our latest insights »
Get the latest UK tax & business news and guidance delivered straight to your inbox
We care about the protection of your data. No spam. Unsubscribe anytime.
02037 282 848
Mon-Fri 9am - 5.30pm
contact@keybusinessconsultants.co.uk
expert financial advice at your fingertips
Copyright © 2021 Key Business Consultants LLP. Reg: E&W OC389322
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram