Giving during life can be a meaningful way to help someone now. Sometimes it also reduces later inheritance tax. But a gift is only sensible if it fits your own financial security, your family and the tax rules. Looking only at tax savings gives an incomplete picture.
How do exemptions work?
Annual exemptions apply to gifts. The amount depends on the relationship between giver and recipient and is set per calendar year. Parents gifting to a child have a different exemption from, for example, grandparents or friends. There are also one-off increased exemptions under conditions. Always check the amount and conditions for the year in which you actually make the gift. Sometimes the recipient must file a gift tax return, including to use an increased exemption.
A gift shortly before death needs extra attention. If the giver dies within 180 days, the gift is generally treated as part of the inheritance for inheritance tax purposes. A last-minute gift therefore does not automatically create a tax advantage.
Record the intention too
Was the money intended as an advance on a future inheritance? Do you want the gift to remain your child's private property? Are there other children, and do you want to prevent them from later looking differently at the arrangements? Discuss such questions in advance and record what you decide. Also consider your own expenses, care costs and the possibility that you may need the gifted amount later.
Additional rules may apply to a home, a business, a forgiven loan or a conditional gift. Have those situations assessed in advance by a notary or tax adviser.
A suitable gifting plan
The Inheritance Guide helps map out your assets, earlier gifts and wishes. That allows you to discuss with a notary or tax adviser what is legally and fiscally sensible, without losing sight of the personal side.
Would you like to make gifts, but first understand what this means for your estate? We put the questions in order for you.