5. Annual exemption
Lifetime gifts will not be subject to inheritance tax if they fall below the total threshold of £3,000 per tax year. This rule will help if you currently or intend to make gifts for birthdays and Christmas, which exceed £250 to an individual over one tax year.
This threshold applies to the total gifts given by the donor in any one single tax year, it’s not a threshold that applies to each person to whom you give gifts.
You can also carry over any unused amount of your annual exemption to the next tax year. Meaning that if you do not give any gifts in one tax year, you can provide gifts totalling up to £6,000 in the next tax year without any inheritance tax consequences.
What about when gifts don’t fall within any of these exemptions?
If no exemption applies to a lifetime gift, it does not mean that inheritance tax is payable straight away.
Regardless of the nature of the gift, it’s likely the 7 years tapering rule will apply, so if the person who gave the gift lives for longer than 7 years, the gift will likely not incur inheritance tax.