If we gift money to our children but ONE of us dies before 7 years?

charliekarno

Thank you for your time everyone - I've been searching for an answer to the below question but can't seem to find it anywhere, I'd be so grateful for any insights!
My wife and I are about to sell our family home and, once sold, we will downsize.  This will leave a chunk of money that we'd like to gift to our children to avoid inheritance tax.  It is my understanding that if we both live for 7 years thereafter they would be able to keep that money without having to pay tax on it but what if one of us dies after 2 years, for example - would they have to pay inheritance tax in that case or would they be ok as long as the surviving parent lives for the 7 years.

Thank you all in advance!

Keep_pedalling

Assuming the gift was a joint one and less than £650k, and you are leaving everything else to each other,  then there would be no IHT to pay as the gift would be within your nil rate bands, all it would do is use up part or all of the NRB. This would have a knock on effect with the second death as the transferable NRB would be reduced or eliminated.

The bigger problem comes if both of you die within the 7 years, but providing you are reasonably healthy and not too ancient you can probably get cheap term insurance to pay the IHT on the second death.  

onwards&upwards

Have you considered possible future care costs? 

charliekarno

Yes, we have put money aside for that already so we are just wanting to give away what we feel we can afford to

Keep_pedalling

charliekarno said:

Yes, we have put money aside for that already so we are just wanting to give away what we feel we can afford to

It is a nice positions to be in. Have you taken into account the residence nil rate band which gives a married couple the ability to leave £1M IHT free?

charliekarno

Hi Keep Peddling
I'm aware of the £1m IHT free but it's just the various scenarios that I'm unclear on, for example:
1) we give our children 350k each and then one of us dies in 2 years - what tax, if any would be payable at that point?
2) upon the remaining person's death we put everything else in their name except for the money needed to 'pay' our children the remaining amount and the remaining parent lives for 7 years - would any tax be payable at this point?

I really appreciate the help, the whole thing is seems so complicated and we don't really want to leave them with a huge tax bill.

Thanks 

charliekarno

Keep_pedalling said:

Assuming the gift was a joint one and less than £650k, and you are leaving everything else to each other,  then there would be no IHT to pay as the gift would be within your nil rate bands, all it would do is use up part or all of the NRB. This would have a knock on effect with the second death as the transferable NRB would be reduced or eliminated.

The bigger problem comes if both of you die within the 7 years, but providing you are reasonably healthy and not too ancient you can probably get cheap term insurance to pay the IHT on the second death.  

Sorry, I didn't see this- it answers part one of my above question ... many thanks!

xylophone

1) we give our children 350k each and then one of us dies in 2 years - what tax, if any would be payable at that point?

You have made gifts totalling £700,000  on the same day from your joint account - you would be seen as having made half the gift each.

The person who died would  have used  his/her individual nil rate band plus £25,000.

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

The donee is liable for the tax on the gift but if he can't or won't pay, then the estate becomes liable.

With regard to the payment of IHT, remember that under the direct payment scheme, your executors can instruct your bank/building society to make payments direct to HMRC before probate.

You could consider holding enough on deposit in one form or another to meet your expected IHT bill on death.

https://www.gov.uk/paying-inheritance-tax/deceaseds-bank-account

Keep_pedalling

charliekarno said:

2) upon the remaining person's death we put everything else in their name except for the money needed to 'pay' our children the remaining amount and the remaining parent lives for 7 years - would any tax be payable at this point?
I really appreciate the help, the whole thing is seems so complicated and we don't really want to leave them with a huge tax bill.

Thanks 

By “remaining amount” I presume you mean  leaving them the difference between failed PET gifts and the NRB, in which case no IHT would be payable 

There should be no fear of leaving children a IHT bill as long as your total non exempt gifting below your 
NRB, but even if you did that they could not be worse off than if you had never made the gift in the first place.

Considering how much money is involved you should consider taking inheritance planning advice from an independent financial advisor .

LilElvis

Keep_pedalling said:

Considering how much money is involved you should consider taking inheritance planning advice from an independent financial advisor .

Plus one for this. My parents have used some of their surplus cash to set up discretionary trusts for their grandchildren, as has my MIL, and also pay into pension schemes for them out of their surplus income. If you have grandchildren these might be something worth considering, especially if your children are already well established.

Savvy_Sue

Plus two for this. If your estate(s) have any chance of being liable to IHT, then it's surely worth paying for professional advice to reduce it.