IHT and PETs

vigman

I have read a great deal on potentially exempt gifts and inheritance tax recently but would welcome clarification on one point, please.

Mr X makes a lifetime gift of £200,000 each to son A and daughter B and then dies within the first year of gifting.

He has the £325,000 IHT allowance.

1.) The way I read it is that as EACH gift is below the IHT threshold, then no IHT is paid on the gifts even though they total £400,000 and are in total £75,000 above the IHT limit??

2.) Or is 40% IHT due on the £75,000 to be paid half each by the children or from the final estate total?

If point 1.) is correct could Mr X have gifted, say, 5 lots of £200,000 to different family members but as each gift individually is below his IHT allowance, no-one has to pay IHT?

Many thanks

Vigman

On_My_Lonesome

Its option 2 the gifts are added together, if they had been done on different dates they would take up the NRB in date order with the earliest gift first.

Hope that helps.

Linton

As Lonesome says and it's a charge on the estate in the first instance. If the estate couldnt pay then HMRC could chase the gift recipients.

vigman

On_My_Lonesome wrote: »

Its option 2 the gifts are added together, if they had been done on different dates they would take up the NRB in date order with the earliest gift first.

Hope that helps.

Many thanks, I thought it had to be but in all blurb it says something like "if the value of the gifts are less than the IHT allowance, then they are exempt from IHT" and it is possible to read this as EACH gift rather than TOTAL of gifts!

Vigman

vigman

Out of interest in this example, if Mr X had a joint £650,000 IHT allowance (transferring unused £325 k allowance from his deceased wife's estate) and then made the 2 x £200k lifetime gifts and died in the first year, there would be no IHT due as the £400K gifts total is less than the £650k allowance?

Is this is the case, if the final estate after these lifetime gifts is, for example, £1 million, is the IHT due only on the £1 million less 650k, or are the lifetime gifts of £400k also added back on to the total estate for IHT.

TIA

Vigman

CLAPTON

it works this way

on death you take the existing value of the estate £1million and add back all the gifts over the last 7 years (with the possibility of taper relief if appliable), in this case 400,000
making a grand total of 1.4million

if the estate has an IHT allowance of 650,000 then the tax is

40% of 750,000

On_My_Lonesome

it is as Clapton says.

you add up the value of the estate plus any gifts of transfers made in the previous 7 years that were not exempt at the time of the gift/transfer. Taper relief may be available depending on time between gifts and death.

Deduct from that the NRB £325k - £650k

You pay IHT @ 40% on what is left.

I should point out that if there are circumstances where you have to go back up to 14 years to iclude gifts and transfers but that does not apply in circumstances you mention.

vigman

CLAPTON wrote: »

it works this way

on death you take the existing value of the estate £1million and add back all the gifts over the last 7 years (with the possibility of taper relief if appliable), in this case 400,000
making a grand total of 1.4million

if the estate has an IHT allowance of 650,000 then the tax is

40% of 750,000

Many thanks, this is what I supposed would happen but it is great to get clarification in this forum.

Is there any way of ensuring that the people who received the gifts pay the IHT due on them rather than the estate?

Thanks again

Vigman

CLAPTON

not really sure,

but one would suppose that the will could make an explicit provision that their share of IHT should be paid by them
or maybe

give then 120,000 and retain the 80,000 in the estate? (would be a bit messy and may not meet the objectives of the giver

xylophone

http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/gifts.htm
http://www.hmrc.gov.uk/inheritancetax/paying-iht/who-pays.htm

jimmo

vigman wrote: »

Is there any way of ensuring that the people who received the gifts pay the IHT due on them rather than the estate?

Thanks again

Vigman

Whilst I claim no expertise in IHT I really find that question rather strange.

If you are in the fortunate position of being able to gift £200k to each of your 2 children why would you want to ensure that they would each get lumbered with an £80k tax burden if you die too early?

You can certainly rest assured that if your estate can’t pay the IHT bill HMRC will be able to charge your children up to £80k each in respect of the PETs but who, or what are you trying to protect?