Inheritance tax query

Kirkmain

I have a question about inheritance tax question which is really bugging me

If I gift my daughter £500,000, and for the sake of argument this is above the IHT allowance threshold I have; I never married, I don't own a house to utilise my resident NRB. Without revealing my age, say I live to 100, which will exceed the "7 year rule", my daughter would have enjoyed the pleasure of my company and the £500,000 would be considered a lifettime gift and she will not have to pay any tax.

Second scenario, I gift my daughter £500,000. But the next day I am murdered by a pscyhopath, or run over by a drunk driver, or blown up by a terrorist. Not only does my daughter not get to enjoy the pleasure of my company and see me enjoy my retirement, HMRC will compound this tragedy and my daughter's heartbreak by charging her inheritance tax on the £500,000 gift.

Have I got this right? Can someone make this make sense?

Rodders53

Well only on the excess over the £325k nil rate band allowance.  (£175k x 0.4 = £70 k)  That will be paid from any other assets in your estate. {I'm assuming you are not daft enough to gift Daughter everything you have today}

You have NEVER owned a home?  If you have that might still allow some (or all of) the Residential nil rate band to be used.  https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band

Kirkmain

Rodders53 said:

Well only on the excess over the £325k nil rate band allowance.  (£175k x 0.4 = £70 k)  That will be paid from any other assets in your estate. {I'm assuming you are not daft enough to gift Daughter everything you have today}

You have NEVER owned a home?  If you have that might still allow some (or all of) the Residential nil rate band to be used.  https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band

Its a theoretical scenario highlighting a perversity in the law. The fact that my estate will be taxed for the privilege of me befalling a tragedy, wheras if I live a long life and enjoy a prolonged retirement, no tax is payable.

Given the "7 year rule", its best to gift moneys to my descendants ASAP to maximize the probability of achieving this right?

Rodders53

Theoretically, maybe yes.

But check out 'deprivation of assets' should you need care in later life - say that accident wasn't fatal

Of course, theoretically, you could make an honest woman of the girl's mother and then have a larger nil rate band to play with between you both.

Albermarle

Its a theoretical scenario highlighting a perversity in the law. The fact that my estate will be taxed for the privilege of me befalling a tragedy, wheras if I live a long life and enjoy a prolonged retirement, no tax is payable.

So lets say this 7 year rule is abolished and you can gift what you like to anybody.

In this case everybody would just give a lot of their assets away as soon as they knew they were ill, even from their deathbed. Multi Millionaires could just give everything away at the 11th hour and pay no IHT.

The very rich would benefit the most, and the Treasury would have to find £5 Billion + from other taxes.

All tax rules benefit some and bring disadvantage to others. That's life.

bluelad1927

Most people who are murdered know the person committing the crime. If you let your daughter know about the 7yr rule she can wait til then to avoid paying tax 😀

Let's face it its a very bizarre concern seeing as you wouldn't be here for it to affect you.

Kirkmain

Rodders53 said:

Theoretically, maybe yes.

But check out 'deprivation of assets' should you need care in later life - say that accident wasn't fatal

Of course, theoretically, you could make an honest woman of the girl's mother and then have a larger nil rate band to play with between you both.

If I'm in a non-fatal accident that meant I had to have care, thats what car insurance is for?

Farway

Kirkmain said:

Rodders53 said:

Theoretically, maybe yes.

But check out 'deprivation of assets' should you need care in later life - say that accident wasn't fatal

Of course, theoretically, you could make an honest woman of the girl's mother and then have a larger nil rate band to play with between you both.

If I'm in a non-fatal accident that meant I had to have care, thats what car insurance is for?

Only if a car is involved, how about you falling down your own stairs, crippling you for life and bed bound forever due to tripping over your own cat?

Kirkmain

Farway said:

Kirkmain said:

Rodders53 said:

Theoretically, maybe yes.

But check out 'deprivation of assets' should you need care in later life - say that accident wasn't fatal

Of course, theoretically, you could make an honest woman of the girl's mother and then have a larger nil rate band to play with between you both.

If I'm in a non-fatal accident that meant I had to have care, thats what car insurance is for?

Only if a car is involved, how about you falling down your own stairs, crippling you for life and bed bound forever due to tripping over your own cat?

That isn't that why  my taxes are for? What happens to those individuals who never worked hard enough to save money, or spent every penny they earned the instant they earned it? Who pays for their care?

Nebulous2

Kirkmain said:

Farway said:

Kirkmain said:

Rodders53 said:

Theoretically, maybe yes.

But check out 'deprivation of assets' should you need care in later life - say that accident wasn't fatal

Of course, theoretically, you could make an honest woman of the girl's mother and then have a larger nil rate band to play with between you both.

If I'm in a non-fatal accident that meant I had to have care, thats what car insurance is for?

Only if a car is involved, how about you falling down your own stairs, crippling you for life and bed bound forever due to tripping over your own cat?

That isn't that why  my taxes are for? What happens to those individuals who never worked hard enough to save money, or spent every penny they earned the instant they earned it? Who pays for their care?

People who don't have any money get free care, however it may well not be a standard of care you are happy with. It may also not be where you want to be. Getting shipped off to a care home with a 1 hour journey for your relatives to visit and not on a bus route, because that is the only one with council places left, might not be ideal. 

If you fall foul of deprivation of assets you will be assessed as still having the assets available and they wont pay. 

Keep_pedalling

Why don’t you buy a house with it instead then you could leave £500k tax free instead of £325k. Getting £500k of tax free money without lifting a finger to earn it is not exactly being hard done by, neither is getting 60% of everything above that either.

You could always cover any IHT liability brought about from an early demise with term life insurance. Anybody who really has half a million to give away has options to minimise or overcome any IHT liability an early death might create.

The 7 year rule is there for a reason, if it did not exist then as soon a a doctor told someone they had six months to live they would simply have to give everything away that took their estate into IHT territory to avoid it being paid.