Anne Robinson provides a lesson in estate planning

The news that Anne Robinson has given away her £50 million fortune to avoid paying inheritance tax has recently caused a splash around the media.

But can gifting your fortune really keep the taxman away? And what does the story tell us about the importance of estate planning?

Inheritance tax back in the spotlight

Inheritance tax (IHT) is payable on all property, possessions and money at a rate of 40%.

The tax-free threshold is currently £325,000, meaning that the majority of estates do not pay any IHT. Fewer than 5% of estates are liable for the tax, according to a House of Commons research briefing in March.

However, for high-net-worth (HNW) individuals like Ms Robinson, minimising inheritance tax is a crucial consideration in estate planning.

The Weakest Link presenter, 79, has reportedly given away most of her fortune to bring down her tax bill. She is quoted as saying she has “spread it about quite a lot”, including gifts to her children.

Ms Robinson has said she is passing her wealth along now because she does not “want the taxman to have it”.

Can I make gifts to avoid IHT?

Making use of gifts is a sensible way to manage your IHT liability.

In estate planning, seven is often seen as the magic number. That’s because gifts made more than seven years before the donor’s death are exempt from IHT.

On the other hand, any money gifted less than seven years before the donor’s death may be taxable.

However, this seven year period should not be used as a reason not to gift. If you don’t gift, the funds are still sat in your account with a potential tax liability. If you die before the seven years elapses, the gift will be added back into your estate and you’ll be in exactly the same position as you were before. If you live for a further seven years, you will enjoy a positive outcome!

Please note that you are considering gifting money during your lifetime, it is important to remember that you should never gift more than you can do without. To be effective, gifts need to be irrevocable – so there is no point making yourself uncomfortable simply to avoid paying some tax.

How are gifts calculated for IHT?

If gifts are made in the seven years before a donor dies, these will be counted first by HMRC when calculating inheritance tax liability.

After gifts are taken into account, the taxman will then count other assets and property that are part of the estate.

There are, however, some exceptions for IHT when it comes to gifting. For example, gifts made to charities or political parties are excluded from the net estate for inheritance tax.

You can make gifts of up to £3,000 every year while you are alive that are exempt from IHT. Any part of the annual exemption that is not used in a tax year can be carried forward to the next tax year.

Trusts help you manage estate planning

Beyond the £3,000 allowance, giving away vast sums of money in the seven years before your death will likely increase your inheritance tax liability.

There are, however, other ways to reduce the bill. These include putting your assets into a trust or leaving your estate to your spouse or civil partner.

Assets placed in trust do not form part of your estate. This means that they won’t be included when working out how much inheritance tax is owed (so long as you live for seven years after placing the assets into trust).

The rules can be complex. For example, the way a trust is taxed depends on the type of trust it is.

Good planning does not happen overnight. For the best estate planning outcomes, it is essential to start early (long before the final seven years!) and take a holistic approach to your wealth, including all money, assets, property and gifting plans.

Here to advise

At Attwaters Jameson Hill, we have been advising on tax and trusts for over 200 years. Our specialist private wealth lawyers have the ideal pedigree to help you with all aspects of inheritance tax and estate planning.

If you are concerned about your IHT liability or want to discuss your plans for making gifts, our team of experts is ready to help. Contact us on 0330 221 8855 or email enquiries@attwaters.co.uk