Seven year rule question

waveyjane

While both people in a married/civil partnership are alive, let's say they make gifts of money above the tax free allowance but below £375K in a tax year. Then one of them later dies.  Is the seven year clock on those gifts still ticking during the life of the survivor?

This is another question that seems like it should be trivial to find the answer for, but for some reason evades all searches...

bobster2

waveyjane said:

While both people in a married/civil partnership are alive, let's say they make gifts of money above the tax free allowance but below £375K in a tax year. Then one of them later dies.  Is the seven year clock on those gifts still ticking during the life of the survivor?

This is another question that seems like it should be trivial to find the answer for, but for some reason evades all searches...

Not sure what you mean by ticking - but say for example a man makes large gifts in the 7 years prior to his death (to people other than his spouse) then leaves his entire estate to his spouse on his death, those gifts will use up some of his nil rate band which won't then be available to transfer to the spouse.

If they have completely joint finances - and the gifts are joint gifts - probably best to treat 50% of the value of the gift as coming from each person.

Keep_pedalling

Assuming you are talking about a joint gift then no, the portion given by the survivor still has the potencisl to drop out of their estate if they survive the full 7 years, the portion from the deceased spouse will form part of their estate and will reduce their transferable NRB accordingly.

If both of them are in good health when making the gift you could think about covering an unfortunate early death by using term life insurance to cover IHT. 

waveyjane

OK so in this example a gift becomes half free of IHT:

1. Couple A + B make gift to son of £50K.
2. Two years pass
3. A dies
4. Five years pass
5. B's half (£25K) is now free of IHT
6. B dies with full unused NRB but TNRB less £25K

but in this example it doesn't:

1. Couple A + B make gift to son of £50K.
2. Two years pass
3. A dies
4. One year passes
5. B dies with unused NRB but £50K still in estate and TNRB less £25K

Is that right? I'm not sure it is...

It's the use of the word "you" in HMRC's guidance that's confusing me I think.

@Keep_pedalling Interesting point about term life insurance!

Keep_pedalling

waveyjane said:

OK so in this example a gift becomes half free of IHT:

1. Couple A + B make gift to son of £50K.
2. Two years pass
3. A dies
4. Five years pass
5. B's half (£25K) is now free of IHT
6. B dies with full unused NRB but TNRB less £25K

Yes, although but for point 6 the TNRB will only be less £25k if the NRB remains at £325k the actual reduction is calculated as a percentage of whatever the NRB is at the time of death of the surviving partner. 

but in this example it doesn't:

1. Couple A + B make gift to son of £50K.
2. Two years pass
3. A dies
4. One year passes
5. B dies with unused NRB but £50K still in estate and TNRB less £25K

Is that right? I'm not sure it is...

It's the use of the word "you" in HMRC's guidance that's confusing me I think.

@Keep_pedalling Interesting point about term life insurance!

In the second example both A and Bs estates will include the £25k gift. The effect on B’s estate will be to still have the £25k in their estate and the transferable available transferable NRB will also reduce by £25k (or 7.7%)