IHT and Gifting

[livingthedream]

Not sure if this a complex situation or not, but HMRC website is really contradicting.

I understand the 7 year rule on gifting, however the reference to IHT states "If inheritance tax is due" bu then later states, that if the person dies within the 7 years the variant levels of tax to pay, however does this only apply to estates and amounts larger than the IHT thresholds ie, £325k and in our case, I understand where one partner dies the transfer of IHT allowance, it doubles this amount.

If we are gifted £325K and other family member is gifted £325k regardless of what happens within 7 years, wouldn't this still fall under the IHT threshold so the tax wouldn't could anyway

The HMRC website makes out that if it's gifted it will be taxed regardless and the amount depends on when the gift was given.

[Sam101]

Each person has an allowance of £325,000 before inheritance tax. A married couple in their own home also have a residential allowance of £175,000 each. Therefore a couple with an estate of under £1,000,000 will not have to pay inheritance tax. That amount does not cover previous gifts in excess of the gifting allowances.

The 7 year rule means that a gift in excess of the normal gifting allowances can be brought back into the calculation of inheritance tax if that person dies within 7 years of making the gift. There may be some reduction from year 3 onwards within the calculation. If that persons estate is not above the allowances, then no inheritance will be payable on that gift.

It would be unusual, although not unheard of, for a married couple to gift £325,000 each before they die, as that would involve a very large value estate and one that may need additional financial planning for other savings that may be available.

Can you let us know a little more about the family situation in order that any guidance to you is correct, particularly regarding Wills or Trusts that have been considered?

[livingthedream]

Each person has an allowance of £325,000 before inheritance tax. A married couple in their own home also have a residential allowance of £175,000 each. Therefore a couple with an estate of under £1,000,000 will not have to pay inheritance tax. That amount does not cover previous gifts in excess of the gifting allowances.

It would be unusual, although not unheard of, for a married couple to gift £325,000 each before they die, as that would involve a very large value estate and one that may need additional financial planning for other savings that may be available.

Can you let us know a little more about the family situation in order that any guidance to you is correct, particularly regarding Wills or Trusts that have been considered?

HI, many thanks, I totally agree and understand the combined IHT allowance and home allowance as well, currently we are considering gifting the full estate which amounts to just over £800k

Father in law died leaving house and money to mother in law, we sold the house, so in theory it's now £800k in cash, I understood that the allowance would pass over as suggested, so if this amount is split and gifted equally, regardless of the 7 year rule, IHT wouldn't be due anyway, regardless of mother in law survival, ie if in 1 year then IHT allowance is still applicable, if over 7 year, would matter anyway as IHT allowance still exists

Is this right?

[Sam101]

This 'whole estate' is the value of your Mother in Law's total assets following your Father in Law's death and based on the figures you have stated, there would not be any inheritance tax to pay with both allowances as well as residential allowances and the 7 year rule would not apply.

However, you need to also be aware that if your mother in law has to go into Care having made that gift, then 'deprivation of assets' would mean that the beneficiaries will legally be responsible to meet all costs involved.

[livingthedream]

However, you need to also be aware that if your mother in law has to go into Care having made that gift, then 'deprivation of assets' would mean that the beneficiaries will legally be responsible to meet all costs involved.

Yes thats a whole new conversation, under the circumstances though, we have suitable grounds to why gifting is the best option, and currently don't believe there are grounds to state we deprived assets purposely

[Sam101]

That's fine and lets hope that a Care home will not be needed but I feel sure that if it is, then as long as the costs are paid by the family, all will be well.