Any gifts made to a UK charity during a donor’s lifetime or in his will are exempt from Inheritance Tax. Political donations to any UK political party that has at least two members elected to the House of Commons or has one elected member but the party received at least 150,000 votes are also eligible for relief. It is also possible to make donations to certain national institutions such as museums, universities and the National Trust and benefit from relief.
Business relief (50% or 100%) can be claimed on qualifying property and buildings, or assets such as unlisted shares or machinery.
Agricultural property relief (50% or 100%) can be claimed on farming land, working farmhouses, farm workers' cottages and barns. There is no agricultural relief for farm equipment but the equipment may qualify for business relief.
There are special reliefs for woodland timber which allow the value of the timber (but not the land on which it sits) to be exempted from an estate.
There are special rules for national heritage property and famous and important works of art.
Recurring annual gifts out of surplus income
This is a commonly used exemption for wealthy taxpayers. Gifts which are made from surplus income which do not result in a fall of the standard of living of the donor are exempt from Inheritance Tax. There is no published limit to this relief; the amount that can be given is only restricted by a taxpayer’s surplus income. This includes monthly or other regular payments to someone, regular gifts for Christmas and birthdays, or wedding/civil partnership anniversaries, regular premiums on a life insurance policy - for you or someone else.
Annual gifts out of capital
Taxpayers may gift up to £3,000 per year to an individual without a charge to Inheritance Tax. The annual exemption may be carried forward by one year but not thereafter.
Small gifts out of capital
Taxpayers may give gifts of up to £250 per recipient per tax year without incurring any Inheritance Tax charge. The exemption does not apply where the gift exceeds £250.
Gifts on marriage
There are also reliefs for wedding gifts. A parent may gift up to £5,000 with no Inheritance Tax liability and grandparents and great-grandparents up to £2,500. There is also a general limit for gifts on marriage of up to £1,000 (per donor).