Chapter: 2 - Inheritance Tax Mitigation: The Basics

Exempt transfers

2.1.5

The basic lifetime exemptions are dealt with at 2.2: viz. the £3,000 annual exemption, the £250 small gifts exemption, the normal expenditure out of income exemption and gifts in consideration of marriage.  The two main exemptions which apply to both lifetime gifts and gifts on death are as follows:

• transfers between spouses/civil partners (IHTA 1984 s18).  Where the transferee spouse/civil partner is, but the transferor spouse/civil partner is not, domiciled in the UK for all IHT purposes (see 15.3 and 16.4), the exemption is limited to £55,000, on a lifetime basis; and

• the charities exemption, which depends on the definition in the Income Tax Acts, broadly a UK registered charity (IHTA 1984 s23 and s272), though following a recent ECJ decision this is likely to be extended to charities within the EEA.

There is also a minor exemption for both lifetime gifts and gifts on death to gifts to political parties (IHTA 1984 s24).  To qualify, at the last General Election, either at least two members of the party must have been elected to the House of Commons or one member elected and not less than 150,000 votes cast for candidates who are members of the party.

Gifts to the National Trust etc (including Government Departments) are exempt (IHTA 1984 s23: see IHTA 1984 Sch 3 for the list of bodies).

Certain transfers of value are ‘conditionally exempt’, broadly of national heritage property or where such property is offered in lieu of IHT or CGT (IHTA 1984 s30-s35A).  This is considered in more detail in Chapter 14: see also 2.11 for a summary.

There is a complete exemption from IHT for the estate of a member of the armed forces who dies on active service against an enemy – or from a wound inflicted, accident occurring or disease contracted at that time (IHTA 1984 s154).  Traditionally, the exemption is construed favourably by HMRC (in relying on an assessment from the Ministry of Defence) and there is no time limit on the period elapsing between the date of the wound, accident or disease and the death.