Tax query on 25k gift for mortgage deposit

Myrmidon_J

sloughflint wrote:

I disagree with a couple of things in post 9.

Assume the amount is 24k and you each gift 12k. Of that 12k, 6k will be IHT exempt using this year's and last year's gift from capital allowance if no other gifts have been made since last year.

So the amount potentially non exempt from IHT is 12k overall or really 6k each.

I said:

"Most gifts above £3,000 (per annum, per person), that remove 'value' from your estate, are treated as a potentially exempt transfers (PETs)."

You've said exactly the same, just worded it differently!

If you both survive 7 years, no IHT would be due whatever the size of respective estates.

If death(s) within 7 years...

Again, you've just phrased my reply differently (seven year clock, transferrable NRB allowance, etc.)...

Also the estate pays IHT, not the son directly.

And I said:

"... it is the (combined) estates that are charged, not individual gifts."

I don't really see what you added.

Still, the point remains: it seems unlikely, on the balance of probability, that the gift in this instance will be subject to IHT.

sloughflint

Myrmidon_J, the two points I disagreed with were:

Myrmidon_J wrote: »

Furthermore, after three years have passed, the rate at which IHT is charged decreases, reducing from 40% to 0% after seven years.

and

Myrmidon_J wrote: »

your son would only face an IHT charge (and even then, not necessarily; it is the (combined) estates that are charged, not individual gifts; although individual gifts can be subject to tax) if both you and your spouse / civil partner died in the next seven years, and the total value of your estate exceeded £650,000.

There would be no taper relief and the IHT would be paid by the estate in this instance. The son would pay only if the gifts exceeded the NRB.

Myrmidon_J

sloughflint wrote:

There would be no taper relief and the IHT would be paid by the estate in this instance. The son would pay only if the gifts exceeded the NRB.

Can you explain why taper relief would not apply to the PET in this instance, if IHT was, in fact, chargeable?

As we have both tried to explain, IHT would only be charged - to the estate - if the value of the estate (including PETs) exceeds the available nil-rate band. In addition, if one spouse dies, the nil-rate band becomes transferrable.

However, if the estate was valued at, say, £1,000,000, and both individuals died within seven years of the gift having been made, the PET would surely become taxable. In this instance, I thought that 'taper relief' would reduce the IHT payable on the original gift...

If the total chargeable value of all the gifts made between three and seven years before a death is more than the threshold at death, then taper relief is due. The relief reduces the amount of tax payable on a gift, not the value of the gift itself.

The amount of the taper relief depends on the length of time by which the deceased survived the transfer. The tax charged is reduced by charging the following percentages of the full rate...

Etc.

I genuinely don't see why this wouldn't apply. Could you explain, for the benefit of us all?

dazeruk

Sorry to but in on this thread but could I get some advice on the following?

My grandmother died in 2007. My parents sold her house in 2008 and also split aside land adjoining the property and sold that seperately. I'm not sure of the total amount they got but both my brother and me were gifted £20,000 each from the sale.

Most of the terminology used is this thread has me confused but is the general gist that inheritance tax is applied 7 years retrospectively? So if my parents died within the next 7 years the £20,000 would be considered in addition to whatever we got from their estate?

sloughflint

Myrmidon_J wrote: »

I genuinely don't see why this wouldn't apply. Could you explain, for the benefit of us all?

It wouldn't apply because the values of the gifts are below the NRB.

dazeruk wrote: »

Sorry to but in on this thread but could I get some advice on the following?

My grandmother died in 2007. My parents sold her house in 2008 and also split aside land adjoining the property and sold that seperately. I'm not sure of the total amount they got but both my brother and me were gifted £20,000 each from the sale.

Most of the terminology used is this thread has me confused but is the general gist that inheritance tax is applied 7 years retrospectively? So if my parents died within the next 7 years the £20,000 would be considered in addition to whatever we got from their estate?

Your parents have an annual gift exemption of 3k and can carry forward one unused year. So the potential non IHT exempt amounts are 14k each (if die within 7 years) rather than the 20k. Whether IHT is due or not will depend on your parents’ combined wealth and timings of death.

To give you some idea:

Spouse 1 dies within the 7 years when allowance is 325k. The 14k gift reduces their allowance to 311k leaving 95.7% unused if they pass their estate to the remaining spouse.

Then spouse 2 dies when the allowance is 350k but still within 7 years of gift. They can uplift their spouse’s unused allowance so their allowance is 195.7% of 350k which is 684.9k.Deduct the 14k gift leaving an allowance of 670.9k. If estate less than this figure then no tax due.

If spouse 2 survives 7 years however, then IHT due only if estate above 684.9k.

[If both happen to die the same tax year, then the calculation to obtain the allowance could be simplified to a straight 2*NRB - 28]

If combined wealth not close to these amounts then no IHT would be due.
Does that make sense?