Lifetime gifts can reduce Inheritance Tax, but survival for seven years and using key exemptions like the £3,000 annual allowance are crucial to making them fully tax-free.

Most gifts made during a person’s lifetime are not immediately subject to Inheritance Tax (IHT). These are known as potentially exempt transfers (PETs) and can become completely exempt from IHT if the person making the gift (the donor) survives for more than seven years after making the gift.

If the donor dies within three years of making the gift, it is treated as if the gift was made on the date of death, and the full rate of IHT may apply. However, if death occurs between three and seven years after the gift, taper relief can reduce the amount of tax payable. The further away from death the gift was made, the lower the tax rate applied, although this only reduces the tax due on the amount above the nil rate band.

It’s important to note that taper relief does not reduce the value of the gift itself, only the tax payable, and it does not apply where the gift is within the nil rate band. Additionally, it does not lower the tax on chargeable lifetime transfers to below the amount originally assessed when the gift was made.

Each tax year, individuals can also take advantage of specific IHT exemptions that allow gifts to be made tax-free, regardless of survival for seven years.

The annual exemption allows you to gift up to £3,000 in total each tax year without adding to the value of your estate for IHT purposes. This amount can be given to one person or shared among multiple recipients. If the full £3,000 exemption isn’t used in one tax year, it can be carried forward, but only for one additional tax year.

The small gift allowance allows you to give as many gifts of up to £250 per person per tax year as you like, as long as no other exemption is used for the same individual. This is ideal for birthday or seasonal gifts made from regular income.

Additionally, you can make tax-free gifts in celebration of weddings or civil partnerships. These are exempt up to £5,000 for a child, £2,500 for a grandchild or great-grandchild and £1,000 for anyone else.

If one partner in a marriage or civil partnership earns under £12,570, you could save up to £252 a year, and up to £1,260 if you backdate your Marriage Allowance claim for the past four years.

The Marriage Allowance can be claimed by married couples and civil partners where one partner does not pay tax or does not pay tax above the basic rate threshold for Income Tax (i.e., one partner must earn less than the £12,570 personal allowance for 2025-26).

If claimed, the lower-earning partner can transfer up to £1,260 of their unused personal tax-free allowance to their spouse or civil partner. The transfer can only be made if the recipient (the higher-earning partner) is taxed at the basic 20% rate, which typically means they have an income between £12,571 and £50,270. For those living in Scotland, this would usually apply to an income between £12,571 and £43,662.

By using the allowance, the lower-earning partner can transfer up to £1,260 of their unused personal allowance, which could result in an annual tax saving of up to £252 for the recipient (20% of £1,260).

If you meet the eligibility criteria and have not yet claimed the allowance, you can backdate your claim for up to four years. This could provide a total tax saving of up to £1,260 and would include the tax years 2021-22, 2022-23, 2023-24, 2024-25 and the current 2025-26 tax year. Applications for the allowance can be submitted online at GOV.UK.

Selling your main residence? Private Residence Relief can exempt you from Capital Gains Tax. If you meet certain conditions, there may be nothing to pay.

In most cases, Capital Gains Tax (CGT) does not apply to the disposal of a property that has been used as your main family residence. This exemption known as Private Residence Relief can eliminate CGT entirely if certain conditions are met. However, the relief does not apply to investment properties that have never been used as your home.

To qualify for full Private Residence Relief, the following conditions must generally be satisfied:

1. The property has been your only or main residence throughout the entire period of ownership.
2. No part of the property has been let out, with the exception of taking in a lodger.
3. No area of the home has been used exclusively for business purposes. (Using a room occasionally or temporarily as a home office does not count as exclusive business use.)
4. The garden and grounds, including any outbuildings, do not exceed 5,000 square metres (just over an acre).
5. The property was not acquired with the sole intention of making a profit.

If a property has been your home at any point, the final 9 months of ownership are automatically treated as a period of qualifying residence for CGT purposes, even if you were not living there when the property was sold. In some limited circumstances, this final exempt period can be extended to 36 months (for example, where the homeowner moves into care or is unable to sell immediately).

Additional reliefs may also be available if the homeowner had to live or work away from home for extended periods.

It's also important to note that married couples and civil partners can only designate one property as their main home at any given time for tax purposes.

Use your own vehicle for work? You could be entitled to a tax-free mileage allowance. Make sure you are not missing out on HMRC-approved rates.

If you use your own car, van, motorcycle, or bicycle for business journeys, you may be entitled to a tax-free mileage allowance from your employer. This is known as a Mileage Allowance Payment (MAP) and is designed to cover the costs of using a personal vehicle for work-related travel. Many employees routinely claim this allowance when driving their own vehicle to visit clients, travel between temporary work locations, or attend off-site meetings.

It’s important to understand that MAPs do not apply to ordinary commuting, that is, travelling to and from your regular place of work. However, where travel is genuinely work-related and qualifies as a business journey, the allowance can be a valuable tax-free benefit.

Employers typically reimburse employees using HMRC’s approved mileage rates, which are designed to reflect reasonable running costs. These rates are as follows:

• Cars and vans:
  • 45p per mile for the first 10,000 business miles in a tax year
  • 25p per mile for each mile over 10,000
• Motorcycles: 24p per mile
• Bicycles: 20p per mile

Where an employee carries a colleague as a passenger during a business journey, an additional 5p per mile per passenger can be claimed provided the journey is for business purposes. This extra allowance is also tax-free when paid by the employer.

If an employer pays less than the approved HMRC rates (excluding the passenger allowance), you may be able to claim the shortfall from HMRC utilising Mileage Allowance Relief.

The Court of Appeal addressed the complexities of benefit scheme amendments and the lines of responsibility within corporate structures in a complex case surrounding post-employment entitlements. A Mr. Fasano had been an employee of RB Health Ltd., a member of the Reckitt Benckiser (RB) Group of companies, until the 13th of June 2019. The RB Group operates a long-term incentive plan, or LTIP, which makes provision of shares or share options for senior personnel employed by its various companies. 

On the 18th of September 2019, RB Group amended the terms of the 2015 LTIP, requiring those participating in the 2015 LTIP to be employed as of 18 September 2019 to benefit from amended performance conditions in May 2020. Thus, Mr. Fasano was not eligible for an award under the amended LTIP rules. Mr. Fasano brought his case against RB Health and the RB Group to a tribunal, alleging that he had been subjected to indirect discrimination on the grounds of age, contrary to Sections 19 and 39 of the Equality Act 2010. 

However, the tribunal held that RB Group was acting as the agent of RB Health when it amended the terms of the rules of the 2015 LTIP and that the provision, criterion or practice (PCP) thus pursued a legitimate aim. On appeal, it was found that the PCP applied by RB Group was incapable of achieving any legitimate aim of retaining staff and thus was not justified. However, the appeal was ultimately dismissed as the RB Group was not acting as the agent of RB Health, and neither RB Health nor RB Group was liable by reason of Sections 109 and 110 of the Act. 

The Court of Appeal dismissed the appeal and agreed with the appeals tribunal that RB Group was not acting as an agent for RB Health when it amended the performance conditions of the LTIP. Therefore, RB Health is not, therefore, liable for any change made by RB Group to the LTIP pursuant to Section 109 of the Act. The Judge emphasised that, for agency to exist under common law and therefore within the scope of the Act, there needs to be clear authorisation from the principal (RB Health) for the agent (RB Group) to act on its behalf as regards a third party, such as Mr. Fasano. The fact that RB Health's employees benefited from the LTIP didn't automatically make RB Group its agent, although there might have been a different outcome if the rules had been applied by an employer to current employees.  

This case demonstrates that, if a parent company, rather than the direct employer, makes a discriminatory decision regarding benefits, it might be harder to hold the direct employer liable under agency principles. Nonetheless, employers need to ensure that any performance-related policies are justifiable in their aim and implementation and non-discriminatory.