Inheritance tax on gift used as housing deposit

scampi_scampi

Hi,

An elderly family member (not immediate) has told me they have left me £100k in their will. As I’m looking to buy a house, they have said I can have the money now (before they pass away) if it will help with a deposit. I’m aware of the 7 year rule and tbh am not sure if they’ll live that long. 

I think their estate (including the £100k) will definitely be higher than the £325k threshold and the rest of their money (including their house) is being left to other family members (also not immediate). I would appreciate guidance on whether this is a) a good idea to do now and b) how much is actually taxed on inheritance? Is it only 40% on the amount above the £325k threshold? 

Thanks in advance!

RAS

Is the elderly family member married, or widowed?

Are any of the possible beneficiaries grandchildren?

scampi_scampi

They’re widowed, and the beneficiaries are all nieces and great nieces and nephews (including me). 

bobster2

Normally it is the estate that pays IHT - not the recipients of gifts given prior to death.

The exception would be - if the deceased made lots of gifts during the seven years prior to their death (and the total gifts exceeded the nil rate band of £325,000).

p00hsticks

Of course the other issue is going to be that if you relative gives you the money now, they will need to redo the will (or at least add a codicil) to specify that you have already had the gift and so the bequest no longer applies, or (from a moral standpoint) you will have to agree to a deed of variation after the death to give up the bequest.

The executor of the will is legally obliged to follow the will even if it is known that the circumstances have changed and that named beneficiaries were given gifts prior to the death instead. 

msb1234

If for example he has £1m estate and therefore its subject to IHT, the fact that he’s given you £100k within the 7 years doesn’t mean you’ll have to pay IHT on the amount he’s given you, but that it will be included in the calculations then the amount payable will be taken from whatever is remaining in the estate before its distributed.

Keep_pedalling

Assuming they inherited everything from their wife, his estate will have an exemption of £650k. 

Making a gift now will reduce the estate slightly as his annual allowance (£3000) will fall out of the estate immediately (£6000 if last year’s allowance was not used). The main difference between gifting now or leaving the money in the will is that any IHT due on the estate will come out of the remaining assets with no liability falling on the gift.

If he does make this gift now he needs to make a new will immediately.