Inheritance Tax and grandchildren

KGMu

If grandparents want to give their 2 grandchildren £20,000 each but then the grandparents both die within 7 years, will the gifts be subject to Inheritance Tax even though the grandparents estate won't exceed the Inheritance Tax threshold?

Tom99

[FONT=Verdana, sans-serif]Each grandparent can use this years £3,000 IHT allowance, carry forward last years £3,000 and on 6th April use next years £3,000.

[/FONT] [FONT=Verdana, sans-serif]So up to £9,000 of each £20,000 gift will be completely free of IHT.

[/FONT] [FONT=Verdana, sans-serif]The remaining £11,000 each will be deducted from their nil rate band if the die within 7 years and no IHT would be payable if their estate does not exceed this slightly reduced nil rate band.

[/FONT] [FONT=Verdana, sans-serif]If one dies within 7 years and their estate is left to the surviving spouse then the survivor will inherit this slightly reduced nil rate band rather than the full nil rate band to add to their own estate.[/FONT]

Keep_pedalling

KGMu wrote: »

If grandparents want to give their 2 grandchildren £20,000 each but then the grandparents both die within 7 years, will the gifts be subject to Inheritance Tax even though the grandparents estate won't exceed the Inheritance Tax threshold?

No, and even if the estate was over the threshold, that tax would come out of the remaining estate not clawed back from the grandchildren.

Lotak

If the estate won't exceed the NRB of £325k, then no IHT will be due.
Even if the estate was worth in excess of the NRB, gifts made prior to death are subtracted from the NRB first, in order of date (i.e. oldest gifts first). So if the £20k gift is the first and (for simplicity) only gift made then the NRB will be reduced by £11k (as Tom99 explained above).

No IHT will be due on the £11k that could potentially be liable to IHT. However, the NRB will be reduced by £11k so the NRB on the estate will be £314k and not £325k

Credit-Crunched

Keep_pedalling wrote: »

No, and even if the estate was over the threshold, that tax would come out of the remaining estate not clawed back from the grandchildren.

No true, the gift would be classed as a failed PET, the recipient of the gift is liable for the tax if any is due (subject to taper relief)

Tom99

Credit-Crunched wrote: »

No true, the gift would be classed as a failed PET, the recipient of the gift is liable for the tax if any is due (subject to taper relief)

[FONT=Verdana, sans-serif]That would only happen if the gift was over £325k and had used up all of the Nil Rate Band.[/FONT]
[FONT=Verdana, sans-serif]In this case the gift is well within the Nil Rate Band so the gift is not taxable. However the residue estate will have £11,000 less NRB so will in effect pay the tax due on the gift.[/FONT]

Keep_pedalling

Credit-Crunched wrote: »

No true, the gift would be classed as a failed PET, the recipient of the gift is liable for the tax if any is due (subject to taper relief)

In practice that only really happens if people have given so much away there is not enough left in the estate to pay the tax.

Credit-Crunched

I agree with your comments, but I feel that it prudent to warn that the recipients 'may' be due to pay the failed PET.

Tom99

Credit-Crunched wrote: »

I agree with your comments, but I feel that it prudent to warn that the recipients 'may' be due to pay the failed PET.

[FONT=Verdana, sans-serif]There is absolutely no way the recipient of £11,000 is ever going to be liable to tax unless £325,000 has already been given away.[/FONT]

Credit-Crunched

Tom99 wrote: »

[FONT=Verdana, sans-serif]There is absolutely no way the recipient of £11,000 is ever going to be liable to tax unless £325,000 has already been given away.[/FONT]

Was that sentence intentionally contradictory?:beer: