inheritance tax query

trailingspouse

Long story short, we are hoping to jump back into the housing market later this year. My father, who is soon to be 77, has just told us that they would like to give us some money towards the deposit - to the tune of £10,000. Am I right in thinking that this gift will not be subject to inheritance tax, as long as he survives 7 years from the date of the gift? Is there anything we need to do? Forms to fill? Or do we need to tell HMRC? And if he doesn't survive that long (no reason to think he won't, but...), how much would we have to pay? And when?

Dad is totally on the ball, and he used to be a bank manager so is financially capable - but I worry that some of his knowledge is now a bit out-of-date.

If it makes any difference, I'm an only child, and know that I will be the sole inheritor of my parents' estate when the time comes.

getmore4less

IHT is only payable when the estate is over the nill rate band, currently £325k for each parent.

If they have not used there £3k annual allowance this year and last then they can give you £12k which is exempt and does not fall into the 7 year PET rules.

kidmugsy

getmore4less wrote: »

If they have not used there £3k annual allowance this year and last then they can give you £12k which is exempt and does not fall into the 7 year PET rules.

Excellent advice: your parents each gift you £5000, preferably accompanied by a letter explaining that he/she is using this year's and (most of) last year's exempt amount. You and they keep the letters on file in case they're ever needed.

xylophone

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm
http://www.hmrc.gov.uk/inheritancetax/intro/basics.htm

sandyinvent

Also note that there is taper relief the closer you get to the 7 years. So for example into year 6 of any inheritence and the grantor dies then there is 80% taper relief on the tax due.

For your purposes getmoreorless' suggestion sounds good

trailingspouse

Very many thanks. We visited them this weekend, and firmed up the details - they will be within the £325K each bank for IHT purposes, and knew about the £3000 each per year, so could in fact give us £6000 for last year, £6000 for this year, and come April, £6000 for next year. Sadly, that amount isn't on the table, but it's good to know that we won't owe anyone anything. It will make a real difference to the amount of deposit we're able to put down on a house, all we have to do now is convince a mortgage provider to lend us some money!!!

John_Pierpoint

sandyinvent wrote: »

Also note that there is taper relief the closer you get to the 7 years. So for example into year 6 of any inheritence and the grantor dies then there is 80% taper relief on the tax due.

For your purposes getmoreorless' suggestion sounds good

For the average "middle class" person this is simply not true; the system adds back the gifts that are potentially exempt transfers (ie more than 3k per year in total each year) and these PETs then use up the £325k - £650k nil rate band. Wow a big chunk of the gift has paid no tax so there is no tax relief to be given. The executors have no need to be bothered trying to chase the gift beneficiaries to see if they can be forced to pay some tax. Shame about the relative who will be collecting the residuary and the tax bill.

nomunnofun

trailingspouse wrote: »

Very many thanks. We visited them this weekend, and firmed up the details - they will be within the £325K each bank for IHT purposes, and knew about the £3000 each per year, so could in fact give us £6000 for last year, £6000 for this year, and come April, £6000 for next year. Sadly, that amount isn't on the table, but it's good to know that we won't owe anyone anything. It will make a real difference to the amount of deposit we're able to put down on a house, all we have to do now is convince a mortgage provider to lend us some money!!!

If their estates before the gift is below the exemption limit it does not matter what amount they give you (leaving aside the potential care home issues) - there will be no IHT to pay anyway!

kidmugsy

nomunnofun wrote: »

If their estates before the gift is below the exemption limit it does not matter what amount they give you (leaving aside the potential care home issues) - there will be no IHT to pay anyway!

True, but who knows what size the estates will be, and what the threshold will be, when the parents die?

Using the £3k exemptions leaves everything clean and clear.