How do gifts to our children within seven years of our death affect IHT?

Retahfufo

We are planning ahead but don't know enough about IHT.  My wife and I are 70 and 60 years old respectively, we are both fit and we are selling our family home, our two sons moving out and finding homes for themselves.  They need help with mortgage deposits now, rather than wait to inherit when we both die.  So we are proposing to downsize our home and give away maybe £300,000 of the sale proceeds to our sons.  They will inherit the rest of our estate, including our new home, when we both die (as it will be registered in joint names (a joint tenancy)).  We have heard that when we die, our estate will be valued inclusive of the value of any gifts we have made in the seven years prior to death.  So if we both survive at least seven more years, the IHT will be based on the value of our estate ignoring these gifts.

Questions arise from this:  (1) As a surviving spouse automatically inherits the estate of the deceased spouse and no IHT is payable until both have passed on, am I right that the seven year rule applies only when the surviving spouse dies (thus making it more likely that the gifts will be free of tax)?  (2) Is there a sliding scale on the seven years - for example, if we died two years after making the gifts, would only 5/7ths of the original gifts score for tax?  (3) Is the IHT payable by the estate (i.e. through the executors) or will HMRC go chasing after the beneficiaries of the gifts (my sons) to collect the tax?  (4) How are "gifts" defined for this purpose, and (anyway) how would anyone know (after we have died) what gifts we had made in the seven year period?  (5) Is there anything else useful to know?

Thank you for your time and trouble.

Keep_pedalling

Both you and your wife have a nil rate band of £325k and as you will be passing your estate to your children also a resident nil rate band of £175k so unless your joint estate currently exceed £1M you don’t have to worry about IHT planning as their will be none to pay.

If your estate is in IHT territory then the answers to your questions are as follows.

1. As each of you are gifting well under your NRBs and leaving the rest to each other IHT will not be due on the first death.

2. Taper relief only applies to gifts over your NRB so there will be no sliding scale.

3. Normally IHT will be pained from the residual estate, unless someone gives so much away there is not enough left to pay the bill.

4. That is down to your executors to declare. They might get away with not doing so but would face criminal charges if found out.

5. it is possible this large gift might be treated as deliberate deprivation of assets, should either of you need residential care and the gift has wiped out all your liquid assets.