Jeff Bezos fortune giveaway raises questions over gifting and tax implications

Jeff Bezos recently announced that he intends to gift the majority of his wealth to fight climate change, support charities and humanitarian causes. Unfortunately, Jeff is a US citizen and therefore subject to US tax legislation and rules. Sorry, HMRC, you've missed out on this one… says Max Sullivan, wealth planner at Kingswood.

But it does raise an important question, does gifting wealth during one's lifetime in the UK come with any tax considerations? The answer is YES. A simple family gift could land an individual in hot water when it comes to UK Inheritance Tax (IHT) rules. Below we look at what one needs to be aware of when it comes to IHT before making any gifts (just in time for Christmas!). 

What is IHT? - IHT is a tax payable on money, savings and any other assets an individual or couple passes on when they die, and potentially some gifts made during one's lifetime. The amount payable is calculated net of relevant allowances, debts and funeral expenses. IHT is currently payable at 40% and is the responsibility of the estate's executor. 

What are the main allowances? - Currently, each-individual has a Nil-Rate Band Allowance (NRB) of £325,000, for married couples or civil partners it is £650,000. There is a further Residential Nil-Rate Band (RNRB) available of £175,000 per individual (the RNRB is qualification based, and some individuals may not benefit). This can in effect mean that a married couple or civil partnership could leave £1mn of their estate to beneficiaries tax-free. Anything over this amount will be subject to 40% tax. 

Can I reduce IHT? - yes, you can. There are various ways of doing this but here we're going to focus on gifting during one's lifetime (which is one way to reduce IHT). 

What gifts can be made? - each financial year you can make gifts of up £3,000 (in total, not per recipient) and if you don't use this in one tax year, you can carry over any leftover allowance to the next year. If you do this, you have to use up all your allowance in that tax year, you can't accumulate several years' worth of allowance and use it up in a single gift. 

Gifts of up to £250 per person per financial year to any number of people are exempt. Each parent of a bride or groom can give up to £5,000; grandparents or other relatives can give up to £2,500 and any well-wisher can give £1,000. Gifts to registered charities and political parties are also exempt from IHT.

There is another simple way of passing money to the next generation which allows for gifts to be made from surplus income, without a seven year rule. Conditions apply, and advice should be sought to ensure that the gifts are made in the right way. 
 
What if I want to make larger gifts, can I? - yes, but if you wanted to make larger gifts during your lifetime, they will typically fall into two distinct categories, and its crucial to understand the difference.

What if I want to make larger gifts, can I? - yes, but if you wanted to make larger gifts during your lifetime, they will typically fall into two distinct categories, and its crucial to understand the difference.

What if I want to make larger gifts, can I? - yes, but if you wanted to make larger gifts during your lifetime, they will typically fall into two distinct categories, and its crucial to understand the difference.
1.    Potentially Exempt Transfers (PETs) - enables you to make gifts of unlimited value which can become IHT free if you survive a period of longer than seven years
2.    Chargeable Lifetime Transfers (CLTs) - you can only gift up to a maximum of your £325,000 NRB every seven years, without incurring a Lifetime Tax Charge of 20%. Calculations in this area are incredibly complex, and professional advice and guidance should always be sought.

A fun fact to finish on: if you leave 10% or more of your total net estate to charity, HMRC reduces the IHT rate levied on your estate from 40% to 36%. How generous of them!

A top tip to finish on: Always, always, always keep records of any gifts you make. A simple record of when you made the gift, what it was for, and the amount should usually be enough. 

With the delayed Autumn Budget taking place, keeping a close eye on the IHT legislation is a very good idea, as it's likely the Chancellor will look to IHT as a potential public spending deficit ‘plug'.

Most importantly, however, individuals should seek professional advice and guidance before considering gifts and/or IHT planning. IHT is a tax that affects the majority of UK individuals in one way or another. 

By Max Sullivan, wealth planner at Kingswood.