Inheritance tax on gifts to children - practical consideration

Madeinireland101

pphillips said:

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.

Thanks - I’d rather avoid getting witnesses involved - I’d be happy for it to be treated as a 50/50 gift if that makes it easier with us just doing a simple letter for the benefit of the executors. As per Keep pedellings suggestion it reduces the hit to 50% if I pick the wrong person to live for 7 years 😀

Keep_pedalling

Madeinireland101 said:

pphillips said:

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.

Thanks - I’d rather avoid getting witnesses involved - I’d be happy for it to be treated as a 50/50 gift if that makes it easier with us just doing a simple letter for the benefit of the executors. As per Keep pedellings suggestion it reduces the hit to 50% if I pick the wrong person to live for 7 years 😀

We certainly have not bothered with deeds, and all our gifts have come out of joint accounts. In reality it is your executor who needs the records of who has given what and to who, we simply keep those financial records with our wills. There will be no tax to pay on the first death, unless you make non spousal gifts and bequests over your NRB, so no one is going to be doing forensic examination of your accounts.

One thing you can do to cover PETs from an unfortunate early demise is to take out term insurance to cover any tax that may be payable or loss of some of your transferable NRB

Mojisola

Keep_pedalling said:

We certainly have not bothered with deeds, and all our gifts have come out of joint accounts. In reality it is your executor who needs the records of who has given what and to who, we simply keep those financial records with our wills.

This is what an elderly relative does - everything is carefully recorded but nothing more formal than that.

A friend who has a generous rich grandmother gets a lump sum from her each year and is expected to write a letter thanking her for the gift and quoting the amount - Granny keeps the letters with her records of the gifts as a secondary proof.

Grumpy_chap

A very practical consideration, but nothing to do with IHT.
If you open a new account in your wife's name so that the gifts can come from her, then this new account will see £80k in followed by £40k plus £40k out.  This is worth discussing with the bank to explain exactly what the transactions are all about before processing anything.  Just to prevent the bank from seeing a new account with big sums passing through and flagging fraud alerts and account freezes.  In fact, even if not opening new accounts, it is worth prepping the banks in advance, and the children's receiving accounts, just to guard against this.

Some other practical considerations:

• Are either of the children in, or possibly going to be, in receipt of benefits?  If so, having £40k land for a future house purchase will affect their benefits received.
• Is there any risk of either of the children being bankrupt or other labilities?
• Once you have made the gift, you cannot guarantee the gift will be spent as you wish.
• Are the children in stable relationships, or risk of half being 'skimmed'?

Sorry these are vague comments, but there is no indication of your children's ages.  They might be 7 & 10 yo, or in the reckless years, stable and mature late 20's with house purchase very much in their short-term aspirations, or reaching seniority with house purchase out of their wildest dreams.

Jeremy535897

Mickey666 said:

Madeinireland101 said:

pphillips said:

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.

Thanks - I’d rather avoid getting witnesses involved - I’d be happy for it to be treated as a 50/50 gift if that makes it easier with us just doing a simple letter for the benefit of the executors. As per Keep pedellings suggestion it reduces the hit to 50% if I pick the wrong person to live for 7 years 😀

That's the problem with this sort of thing; predicting the future is tricky.  For some outcomes a gift would be the best thing, maybe a joint gift, maybe a gift wholly from one person, maybe from another person.  Sometimes a loan might be a better option (for example if the receiving person dies before 'lender').  Because of all these variables it's difficult to decide what's best - and when we think of what's 'best' we're usually thinking about what would minimise the tax liability. 

But, what if we could apply quantum theory to such planning . . . as in all possible states can exist (a phenomenon called superimposition') until physical observation causes this superimposition to 'collapse' into a single state.  A sort of "Schrodinger's Tax Plan", if you like (readers who haven't a clue where this ramble is going might want to Google 'Schrodinger's cat' for some background ).  But I digress.

In short, while we can't predict the future we can document the past and with a little hindsight we can document the 'best' options.  The transfer of money from one person to another is a simple matter of record (I'm ignoring the option of untraceable cash transactions here, though they can also have their place ) so it is usually the intent behind the transfer that is the issue - e.g. is it a gift or is it a loan?  
Now consider who needs to know - well it's initially down to the executor, who in most cases is chosen as a trusted and 'friendly agent'.  They may even be a beneficiary, further reinforcing their 'friendly' nature.

So, pick a scenario involving the death of one of the players.  Now consider, in this scenario, the best intent for the money transfer, eg a gift or a loan or perhaps some other arrangement.  Now prepare the relevant documentation for ALL these options and place in a safe place away from all possible observation such that ALL options exist.  Now pick another scenario involving the death of another one of the players and repeat the process . . . and so on until all possible scenarios and all possible options are documented, though not yet observable and thus all being possible.

Come the sad day of reckoning and the executor is called upon to exercise their duty, they must first decide the best option for the scenario they now face.  Lo and behold, they can now pick the best option from ALL the previously defined possibilities and destroy the unwanted options.  In terms of the Schrodinger's Cat analogy, while the 'box' is sealed all options can exist but by the very act of the Executor opening the box and 'observing' things, only ONE option actually comes into existence.  With the benefit of hindsight it will, of course, be the 'best' option for the given scenario and the proof will be in the documentation now in the hands of the Executor and thus indisputable.

Of course, 'Schrodinger's Cat' was only a 'thought experiment' and never intended to be taken literally and actually implemented in real life . . . . 

Using quantum physics as a defence against fraud is a new one on me.

unkle

At those level of gifts you won't get any taper relief anyway until the 7 years passes and they are no longer a part of your estate. Any gifts are first used against the IHT allowance.