Question of the week: Inheritance tax on house deposits for three kids?

SeniorSam

Bramblegirl wrote: »

I would still check very carefully all information on this one. My solicitor checked and discussed with HMRC at length this very question and even though the premiums, although large, definitely did not "reduce the normal standard of living" for my Mother they were not exempt as claimed by SeniorSam! HMRC have been relentless in claiming every scrap of tax from very open accounts. I just think people need to be aware of all the facts.

Bramblegirl .... I would be interested in the figures concerned and ages of parents? As an example, at age 68 and gifting say £100,000 to each child, the overall gift would be within the nil rate band. The IHT payable if died within 7 years would be 40% of that £120,000 and on a seven year term assurance, that premium would be about £1250 per annum.

This is within the annual gifting exemption that each person has (£3000) and would not count as a gift. Also paying £1250 for 7 years (£8,750) is a lot better than £120,000 IHT.

Your own figures may be different but I would be interested in knowing your own calculations on this particular case...... and I would think the original questioner would also.

What is needed is an IFA who understands the effective action that can be taken and solicitors who may sobtain information from the Revenue, certainly cannot give any financial advice as the Law Society prevents this.

I await hearing more.

Sam

LilysDad

SeniorSam wrote: »

What is needed is an IFA who understands the effective action that can be taken and solicitors who may obtain information from the Revenue, certainly cannot give any financial advice as the Law Society prevents this.

As an IFA I would endorse Sam's comments. On more than one occasion I have had to explain to clients that the solicitor dealing with the administration of an estate did not have sufficient grasp of the IHT planning that had been done, and have had to prepare separate papers for them to successfully challenge the initial HMRC assessment. One of the key issues here is how well the intent to pay out of normal expenditure had been documented as well as being able to demonstrate the ability to do so. Was there a paper trail anywhere ?

Going back to the original question, the answer is that unless the size of the gift exceeds the nil-rate band (NRB), then no IHT will be payable. What happens instead is that if the death occurs within the 7 year timeframe, then the value of the gift plus any other lifetime transfers not otherwise exempt, effectively uses up some or all of the NRB. This means that the children would not be clobbered for the IHT on those gifts but that there was less NRB for the estate to use which may mean higher IHT on the estate itself.