IHT on gift

Skint_yet_Again

Could someone give me an idiots guide for IHT and gifts. I am thinking of selling my home & downsizing. I would like to gift £30,000 to my son for a house deposit, buy a cheaper home & use the rest to live off until my pensions & state pension start.  If I die within 7 years of the gift am I correct that the gift is deducted from the £325,000 IHT limit & if my remaining estate is less than the remainder no IHT would be due ? Or is it based on my estate at the time of the gift ? 

macman

No, if you die within 7 years it is included in your estate. You can however make smaller gifts up to £3K per year.
Taper relief applies in years 3 to 7.

getmore4less

No taper relief on £30k gift. 

Jeremy535897

If you die within seven years of making a non-exempt gift of £30,000, and you have made no other gifts, that gift is treated as the first part of your estate, using up part of your nil rate band (currently £325,000 as you say, but that assumes that you inherit no nil rate band from a spouse, and you have no residential nil rate band). If you haven't used your annual exemptions elsewhere, you have £3,000 a year (and you can carry forward an annual exemption for one year). This is quite a good basic guide:
https://www.gov.uk/inheritance-tax/gifts

Skint_yet_Again

Thanks for all the replies. Am divorced so no spouse. Current house is in my name & transfer of equity was done at time of divorce. So I can deduct £6000 from the £30000 leaving a non-exempt gift of £24,000 ? As long as the value of my estate when I die, including my new home, is less than £301,000 no IHT would be due ? Is that correct ? 

getmore4less

You will have  residential nil rate band to add to that if your son will be inheriting assets, how much of a full RNRB will depend on a few things. 

macman

getmore4less said:

No taper relief on £30k gift. 

 Could you clarify that please? My understanding is that it starts at 40% in the first 3 years, diminishing to 0% after 7 years.

getmore4less

Plenty of examples on the web hmrc manual. 

Taper relief is on the potential tax on the gift

Tax does not kick in till gifts exceed the nil rate band. 

pphillips

macman said:

getmore4less said:

No taper relief on £30k gift. 

 Could you clarify that please? My understanding is that it starts at 40% in the first 3 years, diminishing to 0% after 7 years.

The gift is only £30,000 so no taper relief if you die within 7 years.
Whereas if the gift were £3 million you'd get taper relief.

Keep_pedalling

As well as your £325k NRB you also have your residential nil rate band worth up to £175k so if your house is worth at least £175k and your estate is under £500k IHT is not an issue. Regardless of the value of your estate gifting never makes things worse.

benccolman

My mother has £400k in the bank.  She is 85 and wants to give me and my sister £100k each.  I am unsure about the payment of IHT.
Please can someone let me know if this is correct:
1) No tax is payable on the £100k gifts (other than on interest they accrue) at the point of giving.
2) If Ma dies within the next 7 years, then my sister and I will each pay the taper relief on the £100k we had + Ma's estate will be valued at £400k (£200k + £200k) so, with a £325k IHT allowance (no property / no spouse), she will have an IHT liability on £75k.
3) If Ma lives for over 7 years then the £100k gifts we each received will be free of IHT and Ma will only pay IHT on the remaining value of her estate (eg £400k less the £200k gifts).
What we are hoping is that we only need to pay IHT (including taper relief, if relevant) after Ma passes away and not beforehand.
Hope someone more clever than me can help as the .Gov.UK info isn't abundantly clear.
Many thanks everyone