When an individual becomes terminally ill, they may want to leave a gift to someone that they love before they die but can they do this free of inheritance tax in Chelmsford? Laura Richardson explores the issues that are involved here now . . .
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“I have been diagnosed with a terminal illness and I want to give a gift to my friend in Chelmsford, will they have to pay Inheritance Tax on this when I die?”
It is very common for people with a terminal illness or limited life span to wish to personally give away objects of sentimental value, cash or other possessions to loved ones before they die. However, if you die within 7 years of making a gift, then the value of that gift may incur Inheritance Tax in Chelmsford and throughout Essex.
Exempted gifts
Most of us give and receive gifts at occasions such as birthdays or Christmas. Providing these gifts are made as part of your normal spending, then these are ‘exempted gifts’ and would not incur Inheritance Tax. Furthermore, each individual has an additional annual £3,000 tax-free allowance for gifts. Similarly each individual has an annual tax-free allowance regarding wedding presents. In general you can gift up to £1,000 for wedding gifts, however this amount is increased for your child or grand-child. Additionally, gifts between spouses or civil partners are also exempt provided that the recipient permanently resides in the UK. Gifts to charities and political parties are also exempt, as are payments to assist the living costs of a child or elderly relative.
Non-exempted gifts
Gifts that fall outside the category of exempted gifts may count towards the value of your Estate and therefore be charged Inheritance Tax. Inheritance Tax is charged on the portion of your estate that is valued over £325,000.
There are two types of gift, firstly anything with value such as cash, property or belongings. The second type of gift is realised through a loss in value when the gift is transferred. For example, if you sell your house to your child for a lower price than it is valued at, then the gift is calculated as the monetary difference between the sale price and the true value of the house.
If you die within 7 years of making a non-exempt gift
If you made the gift within the 3 years before you die then the chargeable rate of Inheritance Tax is 40% of the value of the gift. However, if the gift was made between 3 and 4 years before your death then the Inheritance Tax rate is 32%, between 4 and 5 years – 24%, between 5 and 6 years – 16% and between 6 and 7 years – 8%.
Contact Andrew Douglas Wills and Legal Services today to arrange a FREE no-obligation consultation in Braintree and the surrounding areas of Essex to find out more about leaving a gift free of inheritance tax in Chelmsford.
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