Inheritance tax need to declare? 27 November 2012 at 7:00PM edited 30 November -1 at 1:00AM in Deaths, Funerals & Probate 4 replies 903 views

mmmkay777

My wife has been given a large sum by her father to help buy a house, enough to go over the inheritance tax threshold. I believe if he lives another 7 years then there will be no tax to pay but do we need to declare this money now to hmrc so they know when she recieved it? We are both PAYE also if that makes a difference so we don't fill in a tax return normally.

zzzLazyDaisy

mmmkay - you don't need to do anything, there is no point at which your wife will be personally liable for tax on this money. There is no gift tax in UK, and if your father does not survive 7 years, then any tax on the gift will become the responsibility of the estate and will be dealt with by the executors when they deal with the IHT liability.

Edit: To clarify - normally when making a gift of this nature the will is drafted to make it clear that any IHT will be paid from the estate. However, Daska is right to point this out (thanks) - OP your wife should raise this issue with her father, and ensure that this point is addressed in his will.

daska

The seven-year rule - 'potentially exempt transfers'
Any gifts you make to individuals will be exempt from Inheritance Tax as long as you live for seven years after making the gift. These sorts of gifts are known as 'Potentially Exempt Transfers' (PETs).
However if you give an asset away at any time, but keep an interest in it - for example you give your house away but continue to live in it rent-free - this gift will not be a potentially exempt transfer. Follow the link below to find out more.
If you die within seven years and the total value of gifts you made is less than the Inheritance Tax threshold, then the value of the gifts is added to your estate and any tax due is paid out of the estate.
However, if you die within seven years of making a gift and the gift is valued at more than the Inheritance Tax threshold, Inheritance Tax will need to be paid on its value, either by the person receiving the gift or by the representatives of the estate.
If you die between three and seven years after making a gift, and the total value of gifts that you made is over the threshold, any Inheritance Tax due on the gift is reduced on a sliding scale. This is known as 'Taper Relief'.

(from HMRC)

mmmkay777

Thanks a lot

getmore4less

It is also possible that the estate may have a nill rate bad of upto twice the rate in force at the time of death(currently £325 x 2 = £650k) if there is any transferable spouse allowance.

All gifts in the 7 year period need to b counted so any in the previous 7 years will start dropping off any any new ones will potentialy be fully taxable.