Avoiding inheritance tax

xxxxxxxx

Is it that my mother can gift £3000 a year to each of her children,  and my father can gift £3000 per year to each if his children ?  There are 3 children. They were going to gift £3000 to each of the 3 children and £3000 to each of the children's partners. 
Now my father is under the impression he can gift my lifelong partner any amount over £3000  and it doesn't matter.  i.e. gifting £12,000 to my partner, £3000 to me ?  Doesn't sound right to me.  
Can I also ask, when they have both passed away do the inheritors have to sign a declaration to say how much we have received in the last 7 years?
Who is normally the executor of the estate? Is it their solicitor? How would they know how many bank accounts and investments and assets they have? and how would they know if anything excessive was given away in the last 7 years?  

Jeremy535897

Each person can give £3,000 a year in total and it will always be exempt from IHT. Each person can also make unlimited gifts to people, so long as each donee receives no more than £250 from each donor in a tax year. This means each parent can buy Christmas and birthday presents totalling £250 for each child, for example. There are other exemptions as well, such as gifts to spouses or civil partners, charities, certain political parties etc. In the case you describe, with three children and their partners (six donees), and two parents, each parent could give £500 to each donee out of the annual exemption.

Once you go beyond that, you get into the PET (potentially exempt transfer) regime for gifts to individuals. A parent can, for example, give £100 million to a child, and it will be inheritance tax free so long as the donor lives for seven years after making the gift.

You can choose whoever you like to be an executor of your estate. The executors can always employ a solicitor (assuming the will allows them to). The executors have to go through all the paperwork and physical assets to establish the value of the estate, and gifts in the previous seven years.

xxxxxxxx

Thanks, 
Is there another way?  Like a trust fund or something? 

Keep_pedalling

Do your mother and father have an estate over £1M? If not IHT is not going to be an issue. They should keep a record of all gifts that exceed their annual allowance to make life easy for their executors as those gifts will need to be declared on the IHT forms if they were made within 7 years of the death.

Retired_Minky

You've inspired me to put all my IHT tips in a thread:
https://forums.moneysavingexpert.com/discussion/6178928/inheritance-tax-tips/p1?new=1

xxxxxxxx

https://www.moneysavingexpert.com/family/inheritance-tax-planning-iht
Questions arising from the above link page.
  
The way it is written does not mention if the actual value of the property makes any difference? Also Direct.gov makes no statement about the actual value of the property making any difference
QU. Can someone confirm the actual value of the property is irrelevant? The property could be worth £49,000 and still the threshold for each married parent would rise to £500,000?  

My parents -married couple- both still alive. Their will states: when either one dies the spouse inherits the entire estate, when the the survivor dies the 3 children inherit everything in 33% each. 
Excerpt from that webpage:
What if we were tenants in common?

If you're tenants in common (you each own a specified percentage of the property), it's more complex. If your partner's made a will leaving their share to you, any inheritance tax would be paid out of the estate by the executor before the bequests are shared out. You may end up having to pay IHT on the property, but it'd depend on the value of the rest of the estate.

If your partner's not made a will leaving their share to you, and you're tenants in common, their share will go to their relations. As an unmarried partner, you'd only be entitled to the share of the house you currently own.

It's especially important that if you own a property with someone who isn't your husband/wife or child, you need to make a will describing exactly who benefits on your death
QU. Can someone confirm this part only applies to unmarried/non civil partner couples? Married couples who are tenants in common makes no difference, the survivor inherits the property and then when it is passed on to the kids the threshold is 1 million.

Jeremy535897

QU re RNRB. See https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band and example where property value is less than RNRB
QU re tenants in common: if the will leaves the share of the property held under a tenancy in common to the surviving spouse/civil partner, that is exempt from inheritance tax. If husband and wife own a property as joint tenants, the property automatically passes to the survivor on the first death, and is therefore exempt, even if the will doesn't say this.

xylophone

If a husband and wife hold their property as Tenants-in-Common, each can make a will leaving an interest in possession to the surviving spouse with  their children being the ultimate beneficiaries.
https://www.canadalife.co.uk/adviser/ican-academy/briefing-notes/estate-planning-trusts/the-residence-nil-rate-band

Linton

xxxxxxxx said:

Thanks, 
Is there another way?  Like a trust fund or something? 

Another way of reducing IHT is gifts from income.  If your parents had more than sufficient income to meet all their expenses they could set up regular gifts to whoever they want.  These gifts would not attract IHT as long as they were covered by the excess income. It can actually be bit more complicated in practice but that is the basic idea.

xxxxxxxx

Linton said:

xxxxxxxx said:

Thanks, 
Is there another way?  Like a trust fund or something? 

Another way of reducing IHT is gifts from income.  If your parents had more than sufficient income to meet all their expenses they could set up regular gifts to whoever they want.  These gifts would not attract IHT as long as they were covered by the excess income. It can actually be bit more complicated in practice but that is the basic idea.

Yes, thanks, I noticed that too yesterday.  This is a really important area for gifting to reduce IHT.  because the "£250 per person gifting from assets" is not worth very much at all.

However, from my knowledge elsewhere, income only remains income for the period it was earned (so to speak) i.e. a monthly income of £2000 only remains to be income for the month after it credited.  After that month has passed whatever remains becomes savings (or assets for IHT purposes).   If the excess income is £1000 a month, then to take advantage of the full allowance a parent would have to make monthly payments of £1000 to their children.  

This then caused me to wonder, as a lot of executors are the inheritors (the children). The average man in the street would not know this principle, and the average parent also would not know. So the parent could make a lump sum payment at the end of each year  and the executors could mistakenly categorise this to be disregarded as excess income gifting.   

The whole system appears to be incredibly lax? 
And the MSE advice page I linked to does not make this clear.

Another area to reduce the taxable amount would be to maximise your home value.  If a couple are living in a home worth significantly less than £350,000  then it may be an idea to move to a better home worth £350,000 or more.  There are other considerations though, costs of moving and council tax etc.

xxxxxxxx

xylophone said:

If a husband and wife hold their property as Tenants-in-Common, each can make a will leaving an interest in possession to the surviving spouse with  their children being the ultimate beneficiaries.
https://www.canadalife.co.uk/adviser/ican-academy/briefing-notes/estate-planning-trusts/the-residence-nil-rate-band

Thanks for the information and the link, I'll read that  link later.  It does seem like this will not be an issue thankfully. I'll make sure dad is aware of this to ask the solicitor.