Anne Robinson and Inheritance Tax: Why “giving while living” makes a difference

Legendary British TV presenter Anne Robinson will turn 80 on 26 September 2024. Having left The Weakest Link, the show for which she is best known, in 2012, Robinson has played host to several programmes since, but is now fully retired.

Despite having a somewhat strict, terse reputation as a presenter, according to the Standard, Robinson has generously “given away” the entire fortune she amassed during her career.

Indeed, Robinson has already begun spreading her wealth – reported to be around £50 million – among her children and grandchildren, saying she doesn’t “want for much” except “good health and family happiness”. But Robinson goes on to say she did this for another important reason: to help her loved ones avoid paying Inheritance Tax (IHT) on her fortune.

Robinson’s actions are a lesson in pragmatism where IHT is concerned. While you and your family may not be sitting on a £50 million fortune, some of your wealth could be subject to IHT when you pass away.

So, you could be wondering, “Can I avoid IHT by giving my money to my loved ones before I die?”

Read on to discover the rules around “giving while living” for IHT purposes.

 

Your family could pay Inheritance Tax on a portion of your wealth when you pass away

As of the 2024/25 tax year, there are IHT “nil-rate bands” that are, effectively, thresholds under which your family would pay no IHT.

The nil-rate band is £325,000, meaning any assets you bequeath worth up to this amount can be passed down tax-free. There’s also an additional £175,000 residence nil-rate band for those passing down their main home to direct descendants. This means that, including your home, you could pass down £500,000 IHT-free. Any assets above this sum may be subject to IHT, normally at a rate of 40%.

Remember that your spouse or civil partner won’t pay IHT when inheriting any assets from you. The nil-rate bands are also individual and if you pass away before your spouse or civil partner, they can claim any unused nil-rate bands from you. So, together, you could pass on up to £1 million IHT-free.

 

Giving funds away gradually could reduce your beneficiaries’ Inheritance Tax bill

As Anne Robinson has decided to do with her £50 million fortune, giving away your estate (or a portion of it) while you’re still alive could help to reduce IHT.

If you plan to do this, it’s important to note that there are rules around giving while living. Here are three to know about, as of the 2024/25 tax year.

1. The £3,000 annual exemption

Every adult has an “annual exemption”, which allows you to give away up to £3,000 tax-efficiently every financial year.

You can carry forward any unused annual exemption for one tax year. For instance, if you gave nothing away in the 2023/24 tax year, in the 2024/25 tax year you could give away £6,000, or £12,000 in combination with your spouse.

The annual exemption is designed to help you reduce the value of your estate gradually and potentially mitigate IHT in the process.

For instance, if you gave away £1,000 a year to each of your three children for the next 20 years (assuming the annual exemption rules don’t change), you could reduce the value of your estate by £60,000 in total.

This also allows you to boost your loved ones’ income over the years and provide meaningful financial help. However, if your financial gifts exceed the annual exemption, there could be a tax charge later on (more on this below).

2. Taper relief

Taper relief is a form of IHT relief that could be applied to financial gifts that exceed the annual exemption and the nil-rate bands.

If you pass away within seven years of transferring the gift, any amount in excess of the annual exemption (£3,000 as of the 2024/25 tax year) and nil-rate bands could still be counted as part of your estate. As such, these gifts could be subject to IHT. In this instance, the rate of IHT may be tapered depending on the time between the transfer and your death. Taper relief is applied on a sliding scale between 40% and 8%.

Remember: if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief. Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.

The rules around taper relief are complicated and can be properly understood and applied under the guidance of a financial adviser.

The bottom line is that gradually giving away funds every year, rather than transferring large lump sums, could help you give your loved ones a tax-efficient inheritance.

3. Gifting from income

If you make regular payments from “surplus income”, these transfers could be free from IHT, even if they exceed the annual exemption.

The annual exemption applies to gifts from capital – that is, your investments, cash savings, properties, and other wealth.

But if you earn an income and regularly have money left over, you could transfer the remaining amount to your loved ones with no IHT consequences.

For example: you earn £100,000 a year. Your lifestyle – all your essential costs, plus holidays and other luxuries – costs £80,000. Every year, you could transfer the remaining £20,000 to your children or grandchildren as a “gift from income”, potentially offering them a gradual inheritance without any risk of taper relief being applied upon your death.

Once again, the rules around gifting from surplus income are complicated. It may be best to speak to a professional before making any decisions about your wealth or IHT planning in general.

 

Speak to a Chancellor financial adviser about bespoke Inheritance Tax planning

Just like Anne Robinson, your wealth circumstances are unique to you. Your inheritance plans, and the amount of IHT your loved ones pay, may be affected by:

• The age at which you pass away
• How many beneficiaries you have, and their relationship to you
• The type of assets you pass down
• Whether or not you have wealth tied up in trusts
• How much you have already given away before you die, and when you bestowed those gifts.

So, even if you are still young and have made no inheritance plans yet, it may be worth engaging with a financial adviser about this.

It’s important to note here that the IHT nil-rate bands you read about earlier have been frozen for several years, and are set to remain so until 2028. As your estate rises in value, so too could your beneficiaries’ IHT bill.

To learn more about estate planning with a view to mitigate IHT, email info@chancellorfinancial.co.uk, or call 01204 526 846 to speak to an adviser.

If you’re already a client here at Chancellor, contact your personal financial adviser to discuss any of the content you’ve read in this article.

 

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, tax planning, or trusts.

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.

Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.