Inheritance tax on gifts to children - practical consideration

Madeinireland101

My wife and I intend to gift our children a fairly large sum (prob £40k) each to help with a house purchase at some point in the future. We are aware that these gifts would be potentially exempt gifts and we would need to live for more than 7 years for them to escape inheritance tax. As my wife is much younger that me we intend for her to make the gift as she has more chance of living the 7 years. We will be making the gift from our joint account but will write a letter making clear that the gift is from her even though we would supply the account from savings accounts that we both own on the understanding that transfers between us would be exempt.

Is that likely to be enough to satisfy the tax man? Or can anyone see any issues with that approach?

Thanks...

Jeremy535897

Why risk confusion for the sake of a simple internet transfer? Put the funds in her savings account first (your post is not clear as to whether she has one of her own, but if not, just open one), then move it to the donees' accounts. Otherwise the onus will be on your executors to show you didn't make half the gift (assuming you do die within seven years).

Mojisola

Madeinireland101 said:

My wife and I intend to gift our children a fairly large sum (prob £40k) each to help with a house purchase at some point in the future. We are aware that these gifts would be potentially exempt gifts and we would need to live for more than 7 years for them to escape inheritance tax.

Only if your estates are big enough to pay IHT. 

If your estates are big enough, it's worth looking at some financial planning.

Madeinireland101

Jeremy535897 said:

Why risk confusion for the sake of a simple internet transfer? Put the funds in her savings account first (your post is not clear as to whether she has one of her own, but if not, just open one), then move it to the donees' accounts. Otherwise the onus will be on your executors to show you didn't make half the gift (assuming you do die within seven years).

That’s what I’m trying to work out. It would be much simpler for it to come from the joint account due to various accounts linked to it from which we need to draw the funds - some are mine (the majority) and some are hers - otherwise she would have to open her own account and we would need a second hop to her new account - all hassle which we are trying to avoid.
So are you saying the taxman would assume 50% from each of us despite an associated letter documenting the gift from her? Wouldn’t the letter be the evidence that the executors need as we would be leaving it with our wills?

pphillips

These gifts aren't large enough to be subject to IHT, but they would be included as part of the donee's estate if the donee dies within 7 years of making the gift. 

If you are intent on using the joint account then I suggest that the gift is made by deed.

Madeinireland101

pphillips said:

These gifts aren't large enough to be subject to IHT, but they would be included as part of the donee's estate if the donee dies within 7 years of making the gift. 

If you are intent on using the joint account then I suggest that the gift is made by deed.

Thanks.

I’m not sure what you mean by a deed - but isn’t that just a letter which documents the gift? - which is what we are planning to do for the absence of doubt - with details of both parties and stating it is a gift and you effectively end all legal rights to it etc.

im a bit confused as I asked previously on another thread what documentation would be required and everyone seemed very relaxed about the documentation that was required.

These gifts aren’t liable to IHT in their own right but our joint estate would and these would enable us to reduce that possibility in 7 years.

Jeremy535897

Madeinireland101 said:

Jeremy535897 said:

Why risk confusion for the sake of a simple internet transfer? Put the funds in her savings account first (your post is not clear as to whether she has one of her own, but if not, just open one), then move it to the donees' accounts. Otherwise the onus will be on your executors to show you didn't make half the gift (assuming you do die within seven years).

That’s what I’m trying to work out. It would be much simpler for it to come from the joint account due to various accounts linked to it from which we need to draw the funds - some are mine (the majority) and some are hers - otherwise she would have to open her own account and we would need a second hop to her new account - all hassle which we are trying to avoid.
So are you saying the taxman would assume 50% from each of us despite an associated letter documenting the gift from her? Wouldn’t the letter be the evidence that the executors need as we would be leaving it with our wills?

What are these "various accounts"? If there is one in your wife's name, just move sufficient funds into it and then make the gifts. Deeds in lockdown are a bit of a nuisance. Your executors will probably use a solicitor, and if that solicitor decides it's a joint gift, despite your letter, you have not achieved your objective.

Keep_pedalling

Although you may indeed be the first to die, people do die at all ages, so making the gift from her adds the risk that her death could double the amount of NRB that could not be transferred to the surviving partner, so I would keep it as a joint gift. This assumes your estate is actually in IHT territory. If you own your own home and have assets under £1M them all this is likely to be academic.

Madeinireland101

Jeremy535897 said:

Madeinireland101 said:

Jeremy535897 said:

Why risk confusion for the sake of a simple internet transfer? Put the funds in her savings account first (your post is not clear as to whether she has one of her own, but if not, just open one), then move it to the donees' accounts. Otherwise the onus will be on your executors to show you didn't make half the gift (assuming you do die within seven years).

That’s what I’m trying to work out. It would be much simpler for it to come from the joint account due to various accounts linked to it from which we need to draw the funds - some are mine (the majority) and some are hers - otherwise she would have to open her own account and we would need a second hop to her new account - all hassle which we are trying to avoid.
So are you saying the taxman would assume 50% from each of us despite an associated letter documenting the gift from her? Wouldn’t the letter be the evidence that the executors need as we would be leaving it with our wills?

What are these "various accounts"? If there is one in your wife's name, just move sufficient funds into it and then make the gifts. Deeds in lockdown are a bit of a nuisance. Your executors will probably use a solicitor, and if that solicitor decides it's a joint gift, despite your letter, you have not achieved your objective.

They are savings accounts that were setup with a linked current account meaning the main way of getting money out (or in)  is to first transfer to the linked current account.

Madeinireland101

Keep_pedalling said:

Although you may indeed be the first to die, people do die at all ages, so making the gift from her adds the risk that her death could double the amount of NRB that could not be transferred to the surviving partner, so I would keep it as a joint gift. This assumes your estate is actually in IHT territory. If you own your own home and have assets under £1M them all this is likely to be academic.

Yes I’m quickly coming to the same conclusion 😀. The estate is definitely in IHT territory so this is an attempt to reduce that and help the kids get on the housing ladder.

pphillips

Madeinireland101 said:

pphillips said:

These gifts aren't large enough to be subject to IHT, but they would be included as part of the donee's estate if the donee dies within 7 years of making the gift. 

If you are intent on using the joint account then I suggest that the gift is made by deed.

Thanks.

I’m not sure what you mean by a deed - but isn’t that just a letter which documents the gift? - which is what we are planning to do for the absence of doubt - with details of both parties and stating it is a gift and you effectively end all legal rights to it etc.

im a bit confused as I asked previously on another thread what documentation would be required and everyone seemed very relaxed about the documentation that was required.

These gifts aren’t liable to IHT in their own right but our joint estate would and these would enable us to reduce that possibility in 7 years.

You'll need an independent witness for the deed, the document must say on the face of it that it is a deed, it will also include other information such as the parties to the deed and identity the property being transferred in consideration of the donee's natural love and affection. You should be able to find a free template you can use.