Inheritance Tax - PETs

Powdergreen

Hello,

Friends of mine (a married couple in their 70s, never married before) have come into some money as an inheritance and would like to gift some to their two grown-up children, £100k to each child.

The total value of their estate currently is something like £900k in their house, and £500k in savings. 

Are we correct in thinking that if they gift £100k to each child now, as long as one survives beyond seven years this £200k would not be taxable?

And as a worst case scenario, if they did this and then both died within a year, around £400k of the total estate would be subject to IHT….is that correct?

Does it matter which of them the gifts come from? Anything else they should consider?

Many thanks in advance! 

Savvy_Sue

Won't comment on the sums, but if they received this inheritance less than 2 years ago, they could make a Deed of Variation to pass these sums to their children directly, it would then be as if the inheritance had been shared with the children by the testator. 

I used to think that all the beneficiaries had to agree to this, but it's only those who are adversely affected. Quick visit to a solicitor, job done. 

Although while they are at the solicitor, it may well be worth reviewing their wills (if they don't have wills, they should of course make them now!) Unless their wills are very recent, it's likely that they take the latest changes to inheritance tax into account. 

Keep_pedalling

A deed of variation is the way to go if within the timescale permitted. The 2 year limit is based on the date of death of their benefactor not the date they received it though.

SeniorSam

Gifting large sums of money at any time needs to be thought through carefully. You are correct with The 7 year rule , although there may be a decreasing liability after 3 years from the date of the gift.
Between a married couple, the two inheritance tax allowances and residential allowances should give you one million pounds free from inheritance tax, after which it is 40% of the remainder. You also have gifting allowances each year which may help to reduce your estate.

Although in your 70's, if you are both in good health, consideration could be given to a decreasing life assurance policy.You may be surprised how low the premiums are when you are insuring for the 40% liability if the gifts came back into your estate ( £ 80,000 for 7 years decreasing for gifting £200,000 from one or half of that if you can both qualify) . Worth looking into.

buddy9

Keep_pedalling said:

A deed of variation is the way to go if within the timescale permitted. The 2 year limit is based on the date of death of their benefactor not the date they received it though.

Definately. The DoV is a better way to do this than gifting.

Keep_pedalling

SeniorSam said:

Gifting large sums of money at any time needs to be thought through carefully. You are correct with The 7 year rule , although there may be a decreasing liability after 3 years from the date of the gift.
Between a married couple, the two inheritance tax allowances and residential allowances should give you one million pounds free from inheritance tax, after which it is 40% of the remainder. You also have gifting allowances each year which may help to reduce your estate.

Although in your 70's, if you are both in good health, consideration could be given to a decreasing life assurance policy.You may be surprised how low the premiums are when you are insuring for the 40% liability if the gifts came back into your estate ( £ 80,000 for 7 years decreasing for gifting £200,000 from one or half of that if you can both qualify) . Worth looking into.

With an estate well over £1M this is the time to be gifting to adult children. There will be no taper relief as the proposed gift is well under their NRBs,

If it is too late for a DoV it is well worth looking term life insurance, which is what we have done to cover potential IHT on substantial gifts.

SeniorSam

If looking at insurance, do ensure you are looking at DECREASING life assurance because as time passes beyond three years, the liability then decreases. This type is of lower cost than just TERM assurance and you would be overpaying for that.

Keep_pedalling

SeniorSam said:

If looking at insurance, do ensure you are looking at DECREASING life assurance because as time passes beyond three years, the liability then decreases. This type is of lower cost than just TERM assurance and you would be overpaying for that.

But with no taper relief on the level of gifts the OP mentioned, the liability will not decrease after 3 years.

getmore4less

Gift inter vivos insurance Google will pull up information specific to insurance against IHT related to gifts.