Declaring gifts for IHT purposes

chile_paul2

Hi all,

I have a question regarding what we need to declare about gifts my father made in the 7 years prior to his death.

My father sold a second house in late 2016 that had been jointly owned by him and his brother and then in early 2015, they distributed some of the proceeds of the house (£31,500) in total between their 9 grandchildren. 

This is within the 7 year limit that applies before gifts are exempt from IHT - although I believe it would benefit from the taper rate of tax. My question is therefore:

1. Given this was proceeds from my Dad's house, should the total value of the gift be considered as part of his estate (even though at the time it was clearly considered and explained to all parties that it was to be a gift from both of them) and the proceeds went into and was paid from a joint account in both names

2. Alternatively, should only half the value of the gift be considered as part of Dad's estate - for the reasons above that the gift was from both of them

3. Or, does this only become an issue if my Mum should also die within the 7 year limit (she is in good health, so we very much hope this would not happen!)

Am I also right in thinking that the amount gifted can be offset against the annual exemptions that my Dad would have had for that tax year and the unused allowance from the previous tax year i.e. £6,000 in total?

Marcon

chile_paul2 said:

Hi all,

I have a question regarding what we need to declare about gifts my father made in the 7 years prior to his death.

My father sold a second house in late 2016 that had been jointly owned by him and his brother and then in early 2015, they distributed some of the proceeds of the house (£31,500) in total between their 9 grandchildren. 

This is within the 7 year limit that applies before gifts are exempt from IHT - although I believe it would benefit from the taper rate of tax. My question is therefore:

1. Given this was proceeds from my Dad's house, should the total value of the gift be considered as part of his estate (even though at the time it was clearly considered and explained to all parties that it was to be a gift from both of them) and the proceeds went into and was paid from a joint account in both names

2. Alternatively, should only half the value of the gift be considered as part of Dad's estate - for the reasons above that the gift was from both of them

3. Or, does this only become an issue if my Mum should also die within the 7 year limit (she is in good health, so we very much hope this would not happen!)

1. and 2. If your father and his brother owned the house 50/50, then why would the total value of the gift be attributed to him? If his brother was entitled to half the proceeds, and gave away half the amount distributed, then your dad's estate only needs to account for 50%, not the whole sale/gift proceeds.
3. The gifts have already been made so they need to be accounted for as part of your dad's estate - your mother wasn't a part-owner of the house which was sold.

chile_paul2 said:

Am I also right in thinking that the amount gifted can be offset against the annual exemptions that my Dad would have had for that tax year and the unused allowance from the previous tax year i.e. £6,000 in total?

Yes. This should make helpful reading: https://www.gov.uk/inheritance-tax/gifts

Keep_pedalling

Taper relief is only available on gifts exceeding the NRB so that does not apply in this case.

chile_paul2

1. and 2. If your father and his brother owned the house 50/50, then why would the total value of the gift be attributed to him? If his brother was entitled to half the proceeds, and gave away half the amount distributed, then your dad's estate only needs to account for 50%, not the whole sale/gift proceeds.
3. The gifts have already been made so they need to be accounted for as part of your dad's estate - your mother wasn't a part-owner of the house which was sold.

Yes, to be clear I was only referring to my Dad's 50% of the house value, not the 50% that his brother owned

chile_paul2

Keep_pedalling said:

Taper relief is only available on gifts exceeding the NRB so that does not apply in this case.

Sorry, what does NRB refer to?

I can't find any reference to it on the link that Marcon shared when it talks about taper relief:

The 7 year rule

No tax is due on any gifts you give if you live for 7 years after giving them - unless the gift is part of a trust. This is known as the 7 year rule.

If you die within 7 years of giving a gift and there’s Inheritance Tax to pay, the amount of tax due depends on when you gave it.

Gifts given in the 3 years before your death are taxed at 40%.

Gifts given 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.

getmore4less

When you say early 2015 what were the exact dates and amounts.

There are other exemptions that could apply on top of the 2014/2015 £3k, as said the previous years, then if any were after April 5 2015 there would be another £3k, then there are the small gift allowances with 9 recipients could be £2k 

the key thing is does it even matter?

The gifts reduce the transferable nil rate band(if applicable) and as long as the mums total NRB(including any residential) covers her estate  it is just a paper exercise.

Was the gift just from father and his brother   or did father also include his  wife as a doner? 

7 year rule
you need to read further down the page to the example

How Inheritance Tax on a gift is paid
Any Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift.
Example
Sally died on 1 July 2018. She was not married or in a civil partnership when she died.
She gave 3 gifts in the 9 years before her death:

• £50,000 to her brother 9 years before her death

• £325,000 to her sister 4 years and 2 months before her death

• £100,000 to her friend 3 years before her death

There’s no Inheritance Tax to pay on the £50,000 gift to her brother as it was given more than 7 years before she died.
There’s also no Inheritance Tax to pay on the £325,000 she gave her sister, as this is within the Inheritance Tax threshold.
But her friend must pay Inheritance Tax on her £100,000 gift at a rate of 32%, as it’s above the tax-free threshold and was given 3 years before Sally died. The Inheritance Tax due is £32,000.
Sally’s remaining estate was valued at £400,000, so the estate would pay Inheritance Tax of 40% on £400,000 (£160,00).

Keep_pedalling

chile_paul2 said:

Keep_pedalling said:

Taper relief is only available on gifts exceeding the NRB so that does not apply in this case.

Sorry, what does NRB refer to?

I can't find any reference to it on the link that Marcon shared when it talks about taper relief:

The 7 year rule

No tax is due on any gifts you give if you live for 7 years after giving them - unless the gift is part of a trust. This is known as the 7 year rule.

If you die within 7 years of giving a gift and there’s Inheritance Tax to pay, the amount of tax due depends on when you gave it.

Gifts given in the 3 years before your death are taxed at 40%.

Gifts given 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.

Unfortunately like many gov web sites the cut down version of the rules are just confusing. That one should state the taper relief only applies to gifts over the nil rate band (NRB) which is currently £325k. So if I give away £400k only £75k of that gift is subject to taper relief.