Insurance, Inheritance and the 7 Year Wait

KPaul

Hi

Anyone know a good way to handle this, if it's possible at all?

My dad who is in his mid-70's, wants to gift me around £350k (nice Dad!). We know that if he dies within 7 years of that gift, it becomes taxable. Can I take out insurance cover to protect me for those years? If so, where do I look for it? (Incidentally, this gift would be independent of his normal estate plan.)

Many thanks!
KP

getmore4less

It is not taxable any more than if he did not give it to you.

If this was the only gift(in the 7 years) then the first £325k(possibly upto £650k) would use up the nil rate band making most of it IHT free anyway.

InsideInsurance

Get him to buy a 7 year life insurance for the IHT amount written in trust for you.

I dont know if you can get a decreasing term policy that mirrors the sliding scale of the IHT but an IFA and/ or advisory Protection Broker would be able to advise him.

agrinnall

KPaul wrote: »

H Can I take out insurance cover to protect me for those years?

Why would you want insurance? If your dad does die then the tax won't be levied on you, it will be paid from his estate. While that may impact how much you receive if you are a beneficiary you won't have to pay anything yourself.

OnanTheBarbarian

Get proper advice on this from either a IFA or a Solicitor.

KPaul

agrinnall wrote: »

Why would you want insurance? If your dad does die then the tax won't be levied on you, it will be paid from his estate. While that may impact how much you receive if you are a beneficiary you won't have to pay anything yourself.

I had imagined that I would be the one liable to pay the tax in that event. (What if the remaining estate lacked sufficient funds to pay the liability, for example?)

His estate, without this 350k, will be fairly substantial and will be split equally between a bunch of siblings. So, if it's the estate that pays, it pays before the net total sum is distributed and the beneficiaries all contributed to the tax due on my Dad's prior gift to me? I suspect my bro's and sis's won't be too glad about that, the unfairness of which might be reason enough to seek insurance.

kingstreet

It's "Gift Inter Vivos", or Gift Cover 7.

It's a decreasing term and the reductions in cover match IHT taper relief on a Potentially Exempt Transfer.

As the cover is pretty specialist and needs to be written in trust, get specialist advice. BTW it's taken out by the donor, not the recipient of the gift. The recipients are the beneficiaries of the trust, despite the estate being liable for the tax.

KPaul

kingstreet wrote: »

It's "Gift Inter Vivos", or Gift Cover 7.

It's a decreasing term and the reductions in cover match IHT taper relief on a Potentially Exempt Transfer.

As the cover is pretty specialist and needs to be written in trust, get specialist advice. BTW it's taken out by the donor, not the recipient of the gift. The recipients are the beneficiaries of the trust, despite the estate being liable for the tax.

Brilliant - thanks Kingstreet. That's the stuff I'm looking for!

agrinnall

KPaul wrote: »

Brilliant - thanks Kingstreet. That's the stuff I'm looking for!

But as I said, and both II and Kingstreet have pointed out, you don't need the insurance (although you might consider offering to pay for the policy), it's your dad that would have to take it out.

If your siblings think that they are being treated unfairly, which on the face of it they might well be, then the obvious answer is for all of them to receive a similar amount now too.

KPaul

Yes, understood re whose policy it is and I'd certainly want to reimburse him.

(It's complicated but the others will benefit in other ways that I will not. I just wouldn't want them carrying part of the cost of my extra bit.)

Very many thanks for the help!

magpiecottage

kingstreet wrote: »

It's "Gift Inter Vivos", or Gift Cover 7.

It's a decreasing term and the reductions in cover match IHT taper relief on a Potentially Exempt Transfer.

As the cover is pretty specialist and needs to be written in trust, get specialist advice. BTW it's taken out by the donor, not the recipient of the gift. The recipients are the beneficiaries of the trust, despite the estate being liable for the tax.

You do indeed need specialist advice.

There would be a discount of 20% on the Inheritance Tax if he survives three years, 40% if he survives 4 years, 60% if he survives five years and 80% if he survives 6 years. If he survives seven years there is no liability.

However, when calculating the liability, the assets are added to the estate in the order in which they were given. So, assuming there are no other gifts to anybody that are outside of other exemptions, thie nil rate band remains at £325,000 and there is no transfer of nil rate band from a spouse, the tax would be calculated on this gift as follows:


Years 1-3

£325,000 × 0% × 100% = £0
£25,000 × 40% × 100% = £10,000
Total £10,000

Year 4
£325,000 × 0% × 100% = £0
£25,000 × 40% × 80% = £8,000
Total £8,000

Year 5
£325,000 × 0% × 100% = £0
£25,000 × 40% × 60% = £6,000
Total £6,000

Year 6
£325,000 × 0% × 100% = £0
£25,000 × 40% × 40% = £4,000
Total £4,000

Year 6
£325,000 × 0% × 100% = £0
£25,000 × 40% × 20% = £2,000
Total £2,000


The remainder of the estate would be taxed at 40% on death at any time in the seven years.


If the OP entered into a formal commitment to meet any IHT cost on the gift, he would seem to have an insurable interest that a gift intervivos plan stating at £10,000 would cover.