Lifetime gifts or inheritance?

It has recently been reported that actor Daniel Craig has indicated that he does not intend to leave his children a substantial inheritance as he finds the practice ‘distasteful’. The James Bond star has two daughters and a stepson.

He has suggested that instead of leaving them a fortune on his death, he intends to give money and gifts away during his lifetime.

The Inheritance Tax consequences of this decision will be dependent on who the actor intends to give his fortune to, and when he does it.

Lifetime gifting?

Lifetime gifting can be an effective way of reducing Inheritance Tax liability on death, but it needs to be carefully considered.

Everybody has an annual allowance of £3,000 for Inheritance Tax purposes which can be gifted each year, and, if not already used, the previous year’s allowance can be rolled over, so, in any one year, up to £6,000 of gifts could be made tax free. However, with an estate the size of Daniel Craig’s, gifting £3,000 a year is unlikely to make much difference.

In terms of gifting larger sums of money, for Inheritance Tax purposes, everybody has a Nil Rate Band allowance of £325,000 which is taxed at 0% and therefore free of Inheritance Tax. Any gifts made in the seven years prior to death will use up this allowance, and therefore any gifts made in excess of the £325,000 allowance in the seven years prior to death will become subject to Inheritance Tax on death.

Any gifts made more than seven years prior to death are exempt from Inheritance Tax and do not use up any of the Nil Rate Band allowance. Obviously, nobody can predict what is around the corner, but if somebody is likely to survive a further seven years, lifetime gifting can be a great way to mitigate Inheritance Tax on death.

Daniel Craig is, at the time of writing, 53, and, according to the Office of National Statistics the average life expectancy at birth in the UK in 2017 to 2019 was 79.4 years for males. Based on these figures, Daniel Craig could be expected to live for approximately another 26 years and therefore well exceed the seven-year period for any gifts made now.

Gifts to charity

Gifts to charity are exempt from Inheritance Tax so if Daniel Craig were to gift some of his fortune to charity, this would reduce the overall value of his estate and therefore the amount of Inheritance Tax payable on death, without using any of his Nil Rate Band allowance.

Gifts to a spouse or civil partner

There is no Inheritance Tax payable on gifts between spouses or civil partners, whether during lifetime or on death. Therefore, Daniel Craig could gift some of his fortune to his wife without affecting his Inheritance Tax position.

Benefits of lifetime gifting

One major benefit of lifetime gifting is of course, as above, that if you survive the seven years after making the gift, you will have successfully reduced the value of your estate, and therefore any Inheritance Tax liability on death.

Another major benefit of lifetime gifting is that you are around to see the difference the gifts have made to the lives of those you care about. Many people leave an inheritance to their children or grandchildren for example in their Will, but because the gift does not take effect until after their death, they do not get to see the difference the gift has made to their children or grandchildren’s lives. Making the gift during lifetime can not only reduce the overall amount of Inheritance Tax payable on your death but can also mean that you get to share the enjoyment with those you care about

More information

If you require any further information on lifetime gifting and inheritance tax, please contact our private client team here.

This article was written by Jessica Newton, Solicitor in our Private Client Team The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of September 2021.