Gifted Deposit - Inheritance Tax?

MentalMinnie

I wonder if someone can help please?

We have gifted money to buy our first house by my in laws, however this money has come from the sale of my MIL mothers home, she is in a nursing home now.

The issue is, if granny dies, are we liable for inheritance tax?

xylophone

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

See above re PET.

MentalMinnie

Hmmmm. Still not really any clearer. Granny's total estate is less than £200k, but she's still alive. My MIL's share has now been passed to us so I don't know where that leaves any of us?!

The way I read it is that as the estate is less than £325 there won't be anything to pay if granny dies in the next 6 years?

dzug1

MentalMinnie wrote: »

The way I read it is that as the estate is less than £325 there won't be anything to pay if granny dies in the next 6 years?

Correct .

MentalMinnie

dzug1 wrote: »

Correct .

Ah, great! My MIL was so worried that she'd be taxed!

Yorkie1

Does the grandmother receive means-tested benefits for her residential accommodation, or is there any possibility of her needing it while still alive? Or means-tested pension benefit?

If so, then you and your MIL need to look up 'deprivation of assets' because the grandmother will be deemed still to possess the money gifted away - and thus may not receive the benefits.

MentalMinnie

Yorkie1 wrote: »

Does the grandmother receive means-tested benefits for her residential accommodation, or is there any possibility of her needing it while still alive? Or means-tested pension benefit?

If so, then you and your MIL need to look up 'deprivation of assets' because the grandmother will be deemed still to possess the money gifted away - and thus may not receive the benefits.

It's in Northern Ireland, plus she's in receipt of her late husband police pension, which pays for the care facility.

MentalMinnie

What's the 7 year thing mean?

00ec25

MentalMinnie wrote: »

What's the 7 year thing mean?

the 7 year thing does not apply to your granny based on the info you provide

if granny makes a gift to you and dies within 7 years of the date of the gift the value of the gift is added back into her estate when calculating the total value of said estate.

If the estate total is then more than £325,000 (OR £650,000 depending on what happened to granddad's money) then inheritance tax would be payable. If less, then IHT is not payable and the whole thing is irrelevant

if the estate is above that threshold and granny dies within 7 years then there is a sliding scale covering how much of the gift is added back into the estate meaning that after year 7 all of the gift is exempt, this is why its called a Potentially Exempt Transfer (PET)

it was all explained on the link if you read it

since you say that MIL (granny) Is already in a nursing home then I'd be more concerned about the deprivation of capital rules than worry over IHT. If MIL is still able to manage her own financial affairs then so be it, she has taken the decision to give away some money but if at a future date she can no longer afford to pay the care home fees herself then the fact she gave away her own money whilst already in care is a cast iron certain deprivation of capital

if MIL is senile and someone else has given you this money under a power of attorney then that person is potentially liable for serious repercussions since it would not be in the best interest of MIL to give you her money

getmore4less

It is very rare for the receiver of a gift to ever have to pay any IHT.

Gifts in the 7 years prior to death use up the nil rate band so they are exempt what's left in the estate is what gets taxed.

getmore4less

00ec25 wrote: »

if the estate is above that threshold and granny dies within 7 years then there is a sliding scale covering how much of the gift is added back into the estate meaning that after year 7 all of the gift is exempt, this is why its called a Potentially Exempt Transfer (PET)

This only applies if the total of all gift in the last 7 years exceed the nil rate band available which currently needs to be in excess of £325k.

gifts use up the nil rate band oldest first and then once over the limit they get taper relief

A common misunderstanding that a lot of people make...

http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/gifts.htm#4