Quilter 11 Gifts and exemptions You can reduce the value of your estate and therefore the amount of IHT you are liable for by ‘gifting away’ some of it before you die. Some gifts are completely free of IHT (ie, do not form part of your estate when you die) whereas others will still be liable to tax, albeit at a reduced rate in many cases. The following summarises the gifts you can make and exemptions available. Spouse/Civil partner exemption There is no IHT to pay on transfers between most married couples or civil partners * living in the UK, ** whatever the amount. Effectively, the amount liable to IHT is deferred until the death of the second spouse/civil partner. However, if you do decide to pass your estate on to your spouse/civil partner, a potential liability can build up again on their death. That is why many couples decide to pass their estate on to their children or grandchildren, rather than to the surviving spouse/ civil partner. * As defined by the Civil Partnership Act 2004. ** F or those married to a non-UK domiciled spouse/civil partner living in the UK, exemption is limited to £325,000. Annual exemption Individuals are entitled to give away £3,000 in total, in any tax year, free from IHT. This allowance can be backdated by one year, so where the full £3,000 is not used in one tax year it can be carried forward to the next. This means a married couple could give away a total of £6,000 a year to their children (for example) without incurring IHT (or £12,000 if the previous year’s allowances were unused). Small gift exemption Outright gifts of up to £250 in total, to each of any number of people in one year, are exempt from IHT. The total of any one person’s allowance cannot form part of any larger gift. Normal expenditure from income Lifetime gifts are gifts made by you while you are alive. To benefit from this exemption, the gifts need to be made periodically (e.g. yearly) and out of true income (e.g. salary, dividends and interest from investments). Provided they do not affect your usual standard of living, they should be exempt from IHT. There is no maximum limit on the amount which can qualify for this IHT exemption, however, this amount can only be worked out on death and some may still be classed as being within your estate for IHT purposes. You should create a written plan showing your intentions to make periodic payments from income and the purpose of these payments. Marriage or civil partnership gifts exemption Gifts made in consideration of a marriage or civil partnership are exempt as follows: Donor Amount Parent Up to £5,000 Grandparent Up to £2,500 Others Up to £1,000 Other exemptions Lifetime gifts for the upbringing of children and other dependants are free from IHT liability. Also exempt are gifts and bequests: to charities to political parties to universities for national purposes for public benefit.