Inheritcance tax, gifts, rollover

cookie365

I've got lots of questions about this

First off, if you make a gift of say £20k in one year to sole beneficiary, is the £3k IHT exemption automatically taken into account, or do you need to make two gifts, £3k and £17k?

Second, I've heard suggestions about loaning a sum to the sole beneficiary and then charging interest, and writing off £3k every year from the debt. Is that a good strategy, and if so under what circumstances? What interest rate should you use, and would there be any advantage to the beneficiary in repaying any of the loan - since that would presumbably be recycled into the estate and form part of the eventual IHT calculation, offsetting the drop in the value of the loan as an asset?

Third - not finally, I'll think of loads more - assuming you still have enough left in the estate to keep gifting £3k each year - is there any benefit in NOT gifting over the £3k any particular year - since a gift MAY attract IHT if you die within 7 years, but WILL if you keep it in your estate?

I am seriously struggling to get my head around this

Keep_pedalling

You don’t need to make separate gifts, £3000 will be covered by the exemption and if you made no such gifts the previous financial year, then you can carry that over to make that £6000. This assumes you have not made similar gifts to anyone else.

Forget the loan idea it does not help in the slightest. If you have the spare cash then it is better to gift big and early than drip feed your potential exempt gifts. If you are in good health then cover any IHT that might be due in the event of an early death with a term insurance policy made in trust to the beneficiary. If you are married you can double up on your allowances.

Are you actually aware of how much you can actually leave without your estate paying IHT.

cookie365

Thank you @Keep pedalling, that does make sense to me. Yes, I think I've understood the actual exemption numbers, it's the gifting strategy that I find confusing.

Keep_pedalling

Just make sure you keep detailed records of all gifting to make life simple for your executor, and if you have unmarried children don’t forget the gift in contemplation of marriage, when they do finally get round to it.

Sea_Shell

Alternatively, If you haven't made any gifts totalling over £3000 in any tax year, should you leave a note to this effect with your financials stating the fact. Will this help, even if, at present, IHT would not be due?