Death:
Exemptions & reliefs

Inheritance tax charges can arise in your lifetime if you give away any of your assets (including money), reducing the value of your estate, but most lifetime gifts will effectively be exempt from the tax, provided you survive for 7 years. Some lifetime gifts, particularly gifts to certain trusts, are liable to inheritance tax when they are made.

Inheritance tax is charged at 40% on the value of your estate over the inheritance tax nil rate band (currently �285,000) on your death, after taking account of any gifts in the last 7 years. Certain gifts, or assets, attract exemptions and reliefs.

Exemptions

With the exception of gifts into a discretionary trust (which are immediately chargeable to inheritance tax if they exceed your nil rate band), most lifetime gifts which are not otherwise exempt are Potentially Exempt Transfers (PETs). They become exempt for inheritance tax purposes provided you survive for 7 years from the date of the gift. Should you die in that 7 year period the value of the gift comes back into your estate at the date of death. Any inheritance tax charge on the gift is reduced on a sliding scale if the gift occurred more than 3 years before death (but in practice this may be oflittle benefit, as the nil rate band will be used against the gift first, so effectively resulting in a full charge)

Transfers between spouses are usually exempt. In this case the term 'spouse' has its natural meaning and you will be regarded as 'spouses' until you are divorced even if the marriage has broken down and you are not living together. A gift to your spouse is not exempt if he or she does not have a UK domicile and the cumulative total of gifts to your spouse exceeds �55,000.

Donations to UK charities, political parties and certain national institutions are exempt.

The other main exemptions are as follows:

�3,000 annual exemptions for total gifts to anyone (if unused in one year it can be used the following year together with that year's exemption)

Small gifts of up to �250 per person receiving the gift

Normal expenditure out of income (gifts must be out of your income, must not reduce your standard of living and must be regular)

Gifts in contemplation of marriage (conditional on the marriage taking place) as follows:

�5,000 to your child on his or her marriage

�2,500 to your grandchild on his or her marriage

�1,000 to anyone else on his or her marriage

Gifts for the maintenance, education or training of your children aged under 18 and in full time education

Reasonable amounts for the support of dependent relatives

Assets of individuals in the armed forces who die from injury or illness that occurred whilst on active service are exempt from inheritance tax

Reliefs

Reliefs from inheritance tax include:

Business assets can attract relief of 100% or 50% depending on the type of asset. This applies to businesses carried on for profit. Businesses dealing mainly in shares and securities, land or buildings do not normally qualify.