Gifting money to Granchildren instead of in the will.

Martini

My Mother-In-Law has left 15% of her assets in her will to her granchildren.  My deceased Father-In-Law had the same wishes in his will but has passed all his assets (and Inheritance Tax allowance) on to her.  The total assets, as of now, do not exceed the £650k threshold but my understanding is that the threshold can be greater (up to £1m I think) if granchildren are involved.

As she doesn't need all her spare money at the moment I suggested that she may wish to give the money away now, remove them from the will and leave the remaining on her death to her children.  This is what the Will states anyway so there are no actual changes to her wishes.

Obviously, if she survives another 7 years there will be no tax implications but does anyone foresee any problems with this change?
If she doesn't the gifts would have to be "totted up" for Probate but should still not exceed any thresholds for tax puposes.

She would change her Will first and then give each of the Granchildren their gift.
The main reason for this change would be that she could be thanked and also see them enjoying their money.  Also it would simplify her Will to just leave equal amounts to her children (or their spouse and children if they pre-decease her).

Thanks for any replies and advice!

Brie

As long as deprivation of assets isn't going to be a problem then there's no reason not to make a change.  Making small regular gifts isn't an issue with IHT as I understand it and more significant ones on special occasions like upon marriage.  And I believe there is a decreasing amount accounted for in the 7 years so that while a death soon would make it as if she still had the money if it happened half way through the 7 years it would have half the impact.

Deprivation would only be an issue if she eventually ran out of money to the point where she needed the local council to provide care - that will obviously be dependent on her age and health with a certain amount of luck.

And presumably you children won't be fussed if you don't get anything if she runs out of cash??  Have you all talked about this - it can be a contentious issue for some siblings.  

Keep_pedalling

There are no negative tax implications even if she does not live another 7 years.

How old are the GC?

Martini

Brie said:

As long as deprivation of assets isn't going to be a problem then there's no reason not to make a change.  Making small regular gifts isn't an issue with IHT as I understand it and more significant ones on special occasions like upon marriage.  And I believe there is a decreasing amount accounted for in the 7 years so that while a death soon would make it as if she still had the money if it happened half way through the 7 years it would have half the impact.

Deprivation would only be an issue if she eventually ran out of money to the point where she needed the local council to provide care - that will obviously be dependent on her age and health with a certain amount of luck.

And presumably you children won't be fussed if you don't get anything if she runs out of cash??  Have you all talked about this - it can be a contentious issue for some siblings.  

Hopefully, fingers crossed, deprivation of assets won't come into it.  At the moment she is already living with us in a separate next door annexe bungalow, and is quite well.  The seven year rule would have an affect on the figures, but if we don't reach the threshold figure at her death, there should be no tax to pay.  Also of course they may abolish Inheritance Tax or alter the threshold in the next Budget!
I am aware of the small gift rule and for gifts on special occasions but the amounts exceed those.
I was only concerned really that the 15% amount would be taken from her allowance only?  I wouldn't have though so when it all gets "totted up".  Discussions so far have involved myself, my wife and her mother.

Keep_pedalling

Martini said:

Brie said:

As long as deprivation of assets isn't going to be a problem then there's no reason not to make a change.  Making small regular gifts isn't an issue with IHT as I understand it and more significant ones on special occasions like upon marriage.  And I believe there is a decreasing amount accounted for in the 7 years so that while a death soon would make it as if she still had the money if it happened half way through the 7 years it would have half the impact.

Deprivation would only be an issue if she eventually ran out of money to the point where she needed the local council to provide care - that will obviously be dependent on her age and health with a certain amount of luck.

And presumably you children won't be fussed if you don't get anything if she runs out of cash??  Have you all talked about this - it can be a contentious issue for some siblings.  

Hopefully, fingers crossed, deprivation of assets won't come into it.  At the moment she is already living with us in a separate next door annexe bungalow, and is quite well.  The seven year rule would have an affect on the figures, but if we don't reach the threshold figure at her death, there should be no tax to pay.  Also of course they may abolish Inheritance Tax or alter the threshold in the next Budget!
I am aware of the small gift rule and for gifts on special occasions but the amounts exceed those.
I was only concerned really that the 15% amount would be taken from her allowance only?  I wouldn't have thought so when it all gets "totted up".  Discussions so far have involved myself, my wife and her mother.

DOA should not come into it with those sorts of percentages.

The 15% would be taken solely from her allowance, the transferable NRB would not be affected. The thing about the 7 year rule is that it will never negatively effect IHT, at worst the gift will result in the same level IHT as if you had never made it. 

Emmia

Martini said:

Brie said:

As long as deprivation of assets isn't going to be a problem then there's no reason not to make a change.  Making small regular gifts isn't an issue with IHT as I understand it and more significant ones on special occasions like upon marriage.  And I believe there is a decreasing amount accounted for in the 7 years so that while a death soon would make it as if she still had the money if it happened half way through the 7 years it would have half the impact.

Deprivation would only be an issue if she eventually ran out of money to the point where she needed the local council to provide care - that will obviously be dependent on her age and health with a certain amount of luck.

And presumably you children won't be fussed if you don't get anything if she runs out of cash??  Have you all talked about this - it can be a contentious issue for some siblings.  

Hopefully, fingers crossed, deprivation of assets won't come into it.  At the moment she is already living with us in a separate next door annexe bungalow, and is quite well.  The seven year rule would have an affect on the figures, but if we don't reach the threshold figure at her death, there should be no tax to pay.  Also of course they may abolish Inheritance Tax or alter the threshold in the next Budget!
I am aware of the small gift rule and for gifts on special occasions but the amounts exceed those.
I was only concerned really that the 15% amount would be taken from her allowance only?  I wouldn't have though so when it all gets "totted up".  Discussions so far have involved myself, my wife and her mother.

Or they might abolish, and a new government (an election is coming) reinstates it.

SVaz

The tapering off mentioned upthread only starts after you have given away more than £325k during the 7 years, which for probably 99% of people,  is never. 

Albermarle

 And I believe there is a decreasing amount accounted for in the 7 years so that while a death soon would make it as if she still had the money if it happened half way through the 7 years it would have half the impact.

It is a common misconception that the taper rule applies in all cases. In fact as the previous poster rightly points out it rarely applies.

Martini

Keep_pedalling said:

There are no negative tax implications even if she does not live another 7 years.

How old are the GC?

Thanks!
All the grandchildren are now young adults.
I couldn't see that giving them the money now would make any difference, and of course the tax may be abolished soon anyway.

Martini

Albermarle said:

 And I believe there is a decreasing amount accounted for in the 7 years so that while a death soon would make it as if she still had the money if it happened half way through the 7 years it would have half the impact.

It is a common misconception that the taper rule applies in all cases. In fact as the previous poster rightly points out it rarely applies.

Thanks.
Quite right.

Keep_pedalling

Martini said:

Keep_pedalling said:

There are no negative tax implications even if she does not live another 7 years.

How old are the GC?

Thanks!
All the grandchildren are now young adults.
I couldn't see that giving them the money now would make any difference, and of course the tax may be abolished soon anyway.

It might make little difference tax wise, but it might be better timing for her GC and at least she would get to enjoy seeing her money put to good use.