Can I pay to take my family on holiday to reduce my inheritance tax bill?

Can I pay to take my family on holiday to reduce my inheritance tax bill?

If you visit us at Giles Wilson looking for advice about potential inheritance tax (IHT) we will balance the options between the good advice to spend your money on yourself now whilst you are fit and well (after all you earned it) and ‘you can’t take it with you’, against the reality that many people do want to help their own beneficiaries as much as they can.

There are clear HMRC rules on how much you can give away each year, and how you can make some regular gifts out of excess income (don’t try this without advice as the rules are absolute and must be done correctly). Everyone has heard of the 7-year rule on substantial gifts (but again there are lots of grey areas!)

But what is to be considered a ‘gift’ during your lifetime? Does this include money spent on your family during your lifetime for ‘shared experiences’ such as holidays? Some may argue that the £3,000 per year gift allowance is too low for example. A degree of reasonability must be considered – for example, a grandfather taking his grandchildren out for a celebratory meal is unlikely to ring HMRC’s alarm bells. However, what if he wishes to pay for an all-inclusive holiday for a family of 6 to celebrate a milestone birthday, with the bill running into the thousands, as the grandfather has the money in the bank to treat his family, but his grandchildren do not? Arguably this could be considered a ‘transfer of value’ as the grandfather is paying for the cost of his family members as an alternative to giving them the cash to pay for the holidays themselves. The amount is certainly key in any such situation and HMRC would ultimately deal with each matter on a case-by-case basis. If the elderly grandfather in this situation would struggle to go abroad without physical assistance, and his family are therefore providing a caring role, this might be a factor considered by HMRC. HMRC are certainly not likely to give a blanket green light on all such holidays being excluded for IHT purposes, as this would potentially open the flood gates.

As ever, we do like to dampen spirits and take the joy out of lots of fun events, but mostly it is a case of the way in which gifts are made and so taking advice on your own particular situation is always recommended.