Inheritance Tax (IHT) has rules and exemptions which are worth getting familiar with; this article should help make things clearer to understand.
As an individual, you have the entitlement to gift up to £3000 during the tax year without incurring an IHT charge. This can be split into multiple gifts or a one-off gift. Should you not choose to use your annual exemption, you may carry it over to the following tax year only.
Who is exempt?
Lifetime gifts are another option and the following are IHT exempt:
Current rates for PETs are 32% for three to four years, 24% for four to five years, 16% for five to six years and 8% between six and seven years.
The death tax rate is 40% and 20% on lifetime transfers where charges apply. For 2019/20 the first £325,000 chargeable to IHT is 0% and known as the ‘nil-rate band’.
There is an additional Residence Nil-Rate band (RNRB) is available where a residence is passed to a direct descendent. Currently the amount of relief is £150,000 and is set to rise to £175,000 for years 20/21.
There is a lot of information available online and it may feel a little overwhelming, so it is worth speaking to an Accountant, as they will be able determine the relevance to yourself and help you to understand the terminology.