Early Inheritance and Inheritance Tax

MrsJ1995

Hi,

I'm just wondering if anyone can help verify whether my understanding of inheritance tax rules is correct.

In 2022, my husband and I were gifted £200k early inheritance from my grandmother and grandfather. We used this to buy and set up our home. My brother was gifted the same amount but this was put into a Vulnerable Person Trust for him. I am trying to clarify whether there are any circumstances under which my husband and I would need to pay inheritance tax on the £200k that was given to us.

My grandparents are both alive. I understand that when one of them dies, the tax free allowance will transfer to the other, so that the remaining grandparent (probably my grandmother) will have an allowance of £650k.

I know that when my grandmother passes, her estate will consist of property, money etc and also any monetary gifts given in the past 7 years, i.e. the £200k given to us. My first question is: Will the gift given to my brother be included in the estate for inheritance tax purposes, even though it went into a vulnerable persons trust?

Secondly, I read on one of the government website pages that the inheritance tax free allowance is used up by gifts first. Does this mean, that provided my grandparents don't give any more monetary gifts, the gifts mentioned above would be covered by the allowance, and therefore my husband and I won't have to pay any inheritance tax upon my grandmother's passing? I.e. £650k allowance - £400k (£200k to me & my husband + £200k to my brother) = £250k allowance remaining to be used for some of the rest of her estate.

Thanks in advance for any help

sammyjammy

You don't pay inheritance tax at all, the deceased persons estate pays it so neither you or your brother will repay any money.

Keep_pedalling

Both gifts are treated the same for IHT purposes. If one of your GPs dies before the 7 years are up then they will have used up. £200k of their NRB so the amount available to the surviving spouse will be reduced accordingly. No IHT will be payable on the first death unless their will leave more than £125k to anyone other than their spouse. If they both die within the 7 years then their total joint exemptions will be reduced from a maximum of £1M to £600k.

p00hsticks

MrsJ1995 said:

 I understand that when one of them dies, the tax free allowance will transfer to the other, so that the remaining grandparent (probably my grandmother) will have an allowance of £650k.

Not if they die within 7 years of making the gifts. If one does, then, then the value of the gifts will use up some of their Nil Rate Band, and only the remainder will pass to the surviving spouse. .

MrsJ1995

Ok, thanks all for your help - I understand a bit better now