Section 11 Of The Inheritance Tax Act – ‘Dispositions For Maintenance Of Family’

Inheritance Tax (IHT) will be payable on your death should the value of your estate, plus certain gifts that you have made in the seven years before your death, exceed the Inheritance Tax threshold currently set at £325,000 per person.

Married couples can combine their Inheritance Tax thresholds, meaning up to the first £650,000 of their combined estate is Inheritance Tax-free.

In April 2017, an extra allowance was introduced when the main residence was passed to a ‘direct descendant’. This is known as the Residence Nil Rate Band. This means that a married couple with children who own property can potentially pass on up to £1 million without paying Inheritance Tax.

In addition to the above thresholds, it is important to remain mindful of certain gifts that can be made which are not subject to Inheritance Tax. In this regard, Section 11 of the Inheritance Tax Act 1984 is often overlooked and can be an important planning opportunity for the family.

Section 11 of the Inheritance Tax Act – Dispositions for maintenance of family

Section 11 states that where a gift is made to a child for maintenance, education or training then the gift is not a transfer of value from an Inheritance Tax point of view i.e. it has no Inheritance Tax implications even if you were to die within seven years of making the gift.

Parents can therefore look to use this allowance towards the payment of school and/or university fees, including living costs. The relief will cover the cost of education and training whilst the child is under the age of 18 and also when the child is over the age of 18 as long as they are in full-time education or training. The relief covers maintenance of the child meaning that it can cover the supply of food and clothes.

The above is therefore an important planning tool, especially for any families paying private school fees. The allowance can be explored in conjunction with the creation of a Trust, as long as the Trust is for the benefit of that child or children and the amount transferred is proportionate to the expected costs of the education and maintenance.

Please note that there may be additional tax charges in respect of the Trust itself which must be considered beforehand.