This is an often overlooked method of potentially making some significant Inheritance Tax savings. If you are lucky enough to find that every year your total income is more than you need to live on, you can give away the surplus to a recipient (or, indeed, recipients or even a Trust Fund) of your choosing, and this is exempt from Inheritance Tax. This is in addition to the annual gifts of £3,000 you can make.
So, for example, if you have a pension of £30,000 a year, but only find yourself spending half of it, you can give away the surplus each year, on top of the £3,000. If done on a regular basis this can again make significant savings for your estate in the event of your death, as the spare money is passed on the family members tax free, rather than adding to your savings and making your estate larger as time goes by and therefore exposed to even more Inheritance Tax.
The crucial point when making gifts of this type is that it must be carefully documented to prove that it is genuinely surplus income, and also to show that you are not giving away your income, but having to dip into your savings.
If you are considering embarking on a scheme of giving in this way to save your estate Inheritance Tax, we would always encourage you to come and talk to us first so that we can fully advise you on the best methods, and provide you with some useful tips and guidance.