Hep IHT, Gifting for property purchase & other tax issues

Countalot

We are intending to support our son with a gift of circa £100k for a house purchase. He will have a deposit and mortgage of just under a half of the value. Can anyone help clarify the issues:-

1) IHT - will this apply and how do we protect him/ousrselves from this in the short term - We have a house worth c £400k mortgage free and savings etc of around £350k before gifting the £100k. I understand that in two/three years when the govt's plans to exclude your main home come in we will not be anywhere near the threshold but wonder what does this mean in the short term. Neither of us expect to pop off within 7 years but as my OH has just recovered from aggressive prostate cancer and is subject to three monthly checks then you have to consider it.
2) We are realising three life assurance policies to partly help with the gift. We no longer require the life cover but understand that any gains are taxable and that a Chargeable Event Certificate would be issued. However what i did not appreciate is that although a basic rate taxpayer, if the gain is added to my taxable income and this pushes me into the 40% band then I will need to pay the additinal 20% tax on the marginal amount over the 40%. I currently earn circa £34k as taxable income after pension contributions. Is this correct and is there anyway to mitigate this as we will need to do this in the next month or so - so cannot spread any gain over two tax years. I have requested 'mock chargeable event certificates for all three policies. (value in total of around £55k held since 1987, 1990 & 1994 all currently fully paid up from 2/3 years ago)
3) We also have around £5.5k in Standard Life shares which I think we can sell and although all were free on demutualisation, at current prices they will easily fit within the CGT allowance for this year of £11,200. Am I right?

We will do the same for our dd in 4 years and don't worry about our own standard of living going forward as we both have worked and very fortunately have good defined benefit pensions which will allow us to live comfortably. We should also, through work and lump sum from pension be able to add the £100k for her to the pot over the next 3/4 years too.

We do worry about our kids though having a roof over their heads and if nothing else the cancer has made us realise the possible pointlessness of having cash in the bank to leave them when we're gone when they could do so much now.

Sorry for the excessivley long post but all thoughts very welcome.

One very stressed mum.

[Deleted User]

There are people better qualified that me to answer the IHT question.

However, the chargeable event question - there is a relief called 'top slicing relief' Without rambling on too much I suggest that you divide the gain indicated on the certificate by the number of years (should also be on the certificate). If this result, when added to your £34000, still makes you a higher rate taxpayer, there is nothing you can do. If it doesn't, it follows that the total gain and not the average gain per year is taking you into higher rate tax. Accordingly you can claim this relief, effectively spreading the gain, and no further tax should be payable.

The Standard Life share sale assumption is correct.

Countalot

Thank you so much, I had read about htat relief but didn't quite follow, now I do. If all else fails may just wait until my income drops to zilch in two years and find the money from a mortgage on our house.

jennifernil

There is no tax on gifts in UK, and if one of you were to die within 7 years, there would be no IHT on the £100k as it is less than the nil rate band. If everything else passed to the spouse there would be no tax on that as there is no IHT on the first death.

Have you made any gifts this year or last year? If not you can each give £6k now that would not count for IHT at all.

info here.....

https://www.gov.uk/inheritance-tax/overview

CLAPTON

as far as IHT is concerned, if your parents joint estate will be liable to IHT on the event of joint deaths, then giving gifts in advance doesn't make the IHT amount any greater

so giving the money now will avoid IHT on the 100,000 if the giver survives 7 years and o joint deaths is no worse.

so at 'best' a lower bill, at 'worst' the same :

kidmugsy

May I suggest that if your husband has lately suffered from cancer then cancelling life insurance may prove an expensive mistake? After all, many people making large gifts to children take out life insurance to cover the IHT if they should happen to die within seven years.

Would it be possible to change the payees on the insurance so that if your husband dies within the life of the contracts the money would go straight to the children? That way the money wouldn't pass through his (or your) estate and therefore would not be subject to IHT at all.

Given the large sums involved you might be wise to see an IFA and/or a suitable solicitor.