Inheritance tax question

Aquamanda

My husband and I have joint savings some of which we are cashing in to give our son a large deposit towards a flat. My husband is a lot older than me so we wanted the money to come from me, due to the 7 year rule on Inheritance tax.
My question is - when the money from our joint savings is paid out we would prefer the cheque to be made payable to me or the money to be paid into my sole bank account, so I can then give the money to our son.
However, I think that the money may have to be paid into our joint bank account, in which case we would then transfer the money to my sole account and then I would give it to my son.
In either of the above situations would there be an inheritance tax problem if my husband died within 7 years. I want the money to be seen as an outright gift from me - but would it be frowned upon that half of that money was my husband's and it would only be in my account for a very short time before passing to my son?
Thanks for reading and would really appreciate help with this.

purdyoaten

Took me a few readings to work that out but the main point is that any transfers from spouse to spouse do not affect either's inheritance tax position. Not my specialist subject by any means, but I am fairly sure that such transfers are ignored.

holly_hobby

There is no IHT between spouses, no matter how much the net estate.

Any non-exempt PET (ie to son) made by hubby or from jnt account during hubbys lifetime (or indeed your own) and within 7 yrs of death would therefore come off his/your own 325k (2013/14) nil rate IHT allowance.

With the corresponding % residual IHT exemption available for transfer to the survivors own nil rate band (by application to HMRC by the decd's executors) on their death.

But firstly, there is an annual general gift allowance of 3k per person, and if hubby hasn't utilised this in the prev yr, he can carry it forward for 1 yr, meaning that he can give 6k in 1 go.

You of course also have the same allowance, so in essence son could rec 12k from your jnt account or from you individually, in 1 payment and it still be an exempt gift.

Would the above deal with the sum involved ?

If not, if hubby gives to you, and you give to son, I can't see why or how HMRC would have an issue - given tsfs between spouses are IHT exempt and we're back to the initial paragraph.

Hope this helps

Holly

Aquamanda

Thanks so much for the responses; yes, basically what I want is for our joint savings to be transferred to me. This will be for a very short time and then I would transfer the mone to my son as a gift to buy a flat. So the money would be coming from me at that point. We have given him money in previous years for ISAs etc so don't think we have anything that can discount the amount and it will be a large amount, something like £200,000.

holly_hobby

Blimey o'reilly .... what a lucky boy !

As I say, all transfers to spouses are IHT exempt, regardless of value, all other non-exempt gifts come off the available nil rate exemption, which as I say is 325k (2013/14 and frozen at this level until Apr 2017).

However, there is no gte that whomever tsfs the money to son will survive for 7 yrs as unfortunately when we go isn't dicated by age .... my own dad was only 42, so you can see what I mean.

Accordingly, if you want to provide for PETs (Potentially exempt transfers), there is a specalist policy called a Gift Inter Vivos,, which is essentially a 7 year decreasing term assurance, where the sum assured mirrors and reduces in line over 7 yrs, with the IHT liability due on a PET (or the PETs) its designed to cover.

To avoid increasing the IHT bill it should be written in trust for the executor or your son OR your son can effect this on life of another (ie written on the donor's life) - your financial adviser should be able to guide.

Hope this helps

Holly

Aquamanda

Yes, he is a lucky boy! But really the basis of this is that we know as an only child at some point there will be a big inheritance tax bill to pay unless we get rid of some of the money now, due to the value of our house etc.
I just wanted to do it the simplest way possible and I do appreciate it is a gamble as to whether one of both of us will survive for 7 years but at the moment due to my husband's age, it seems more likely that I may survive longer so thought if the money comes from me it would be easier. If I do not survive 7 years, then our son would have to pay the inheritance tax out the estate etc.

holly_hobby

As I say, age is no reflection of how long we have.

You could of course effect Gift Inter Vivos policy I've mentioned.

Additionally if you are of High Net Worth (HNW), I presume you have or are to engage your own tax pracitioner re effective IHT and estate management ? If not I stongly suggest this, along with updating of wills.

Such things that can be done to reduce the estate, are to exhaust your annual exempt gift allowance as I've already discussed.

Gifts from your income that don't affect/compromise your standard of living are also exempt.

Gifts on marriage are 5k.

Additionally, if you donate 10% of your net estate to a recognised HMRC charity, the residual estate is taxed at 36% instead of 40% - whether you would wish to do this, and just how much it would mitigate will all be down to the figs and is debateable of course.

There are other actions that can be taken, which I won't go into here - but your adviser should be able to address.

Hope this helps

Holly

PS - here's a link I've dug out from HMRC re exempt gifts, PETs etc, - http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm