Inheritance Tax

dec9

Are you still liable for the 7yr inheritance tax rule, if you are under the inheritance tax threshold and you give some money to your children?
Or does it apply to everybody no matter how much your estates worth?

HappyHarry

The seven year rule still applies, but may well be irrelevant.

The rule is that non-exempt gifts made in the seven years before death remain in estate for inheritance tax calculations.

If the estate, including non-exempt gifts, does not exceed the nil rate bands, then there is no inheritance tax to pay.

Bookworm105

if there was no 7 year rule then you could not calculate if there was IHT to pay 

so yes: it apply to everybody no matter how much your estates worth, but obviously if there is no IHT to pay then the 7 year rule is irrelevant 

dec9

HappyHarry said:

The seven year rule still applies, but may well be irrelevant.

The rule is that non-exempt gifts made in the seven years before death remain in estate for inheritance tax calculations.

If the estate, including non-exempt gifts, does not exceed the nil rate bands, then there is no inheritance tax to pay.

Thanks for your replies.
I've read up on it and it all seems complicated.

So to sum up, I am married 68yrs old and not in good health. The total estate that's the house (mortgage free) and all our savings, investments is £720K.

Should I die before the wife she inherits everything (as per my will) she would not pay any inheritance tax.

When she dies she could claim inheritance tax relief of £325K each for the wife and I that's £650K.

Then we have £175K main residence allowance for each of us which would all together add up to total of £1 million inheritance tax allowance.

If we decided now to gift our 3 grown up children £100K between them them now, would any inheritance tax re our money gift apply. Or would the total for everything still be under the £1 million so no tax is applicable?

Sorry to babble on, but my brain doesn't work to well nowadays! 
 

marky264

This is exactly what am trying to look into, can anyone confirm this is correct please?

HappyHarry

Everything is under the £1m so no IHT will be applicable whether you give it all away now or wait until after 2nd death.

If either of you need the local authority to pay for your care in the future they might claim back some more any of the gifts you make to your children now (see many threads on the subject of deliberate deprivation).

dec9

Thank you Harry

Keep_pedalling

Any gifts you make now stat within your estate for 7 years. but as your joint net worth is below £1M that is not going to be an issue under the current rules. If you gift £100k now as a joint gift then allowing for your individual annual exemptions each of you will still have £47k of that gift counted for IHT purposes which is £3k less than you would have if you did not make that gift. If you did not use last year’s allowances that reduces to £44k. 

All that will happen if the first death occurs within 7 years is that the transferable amount of NRB reduces by the amount if that gift (or % of the gift if the NRB changes). Gifting never has a negative impact on the amount of IHT an estate has to pay.

If one of you is far more likely to die than the other then it might be worth while making the gift solely from the person who has the greatest chance of surviving.

Jeremy535897

HappyHarry said:

Everything is under the £1m so no IHT will be applicable whether you give it all away now or wait until after 2nd death.

If either of you need the local authority to pay for your care in the future they might claim back some more any of the gifts you make to your children now (see many threads on the subject of deliberate deprivation).

At least for the moment, the council would need to show that gifts were made with the intention of avoiding paying for care, and there was a reasonable prospect of you needing care, to be able to say there was deprivation of assets.

Brie

Jeremy535897 said:

HappyHarry said:

Everything is under the £1m so no IHT will be applicable whether you give it all away now or wait until after 2nd death.

If either of you need the local authority to pay for your care in the future they might claim back some more any of the gifts you make to your children now (see many threads on the subject of deliberate deprivation).

At least for the moment, the council would need to show that gifts were made with the intention of avoiding paying for care, and there was a reasonable prospect of you needing care, to be able to say there was deprivation of assets.

It may depend on the council of course but if someone is 68 and admits to being in poor health than any gift they make will be looked upon as suspect.   And even an older person in good health might have their motives questioned as it is natural that the older one gets the more likely care of some type may be required.

Then again if they have assets in access of £1m the point may be moot as they are less likely to need council assistance and therefore less likely of there to be considered deprivation of assets.

Jeremy535897

Brie said:

Jeremy535897 said:

HappyHarry said:

Everything is under the £1m so no IHT will be applicable whether you give it all away now or wait until after 2nd death.

If either of you need the local authority to pay for your care in the future they might claim back some more any of the gifts you make to your children now (see many threads on the subject of deliberate deprivation).

At least for the moment, the council would need to show that gifts were made with the intention of avoiding paying for care, and there was a reasonable prospect of you needing care, to be able to say there was deprivation of assets.

It may depend on the council of course but if someone is 68 and admits to being in poor health than any gift they make will be looked upon as suspect.   And even an older person in good health might have their motives questioned as it is natural that the older one gets the more likely care of some type may be required.

Then again if they have assets in access of £1m the point may be moot as they are less likely to need council assistance and therefore less likely of there to be considered deprivation of assets.

It isn't a matter of councils doing what they want, despite them thinking it is.
https://www.ageuk.org.uk/information-advice/care/paying-for-care/paying-for-a-care-home/deprivation-of-assets/