7 year rule confusion

StevieD54

I thought I knew all about this, but a recent discussion with my partner has got me a bit confused.

Example: I give a close friend £10k next week, then I die the week after.  If my estate does not exceed £325k, I assume the friend (or rather, the estate) does not have to pay 40% IHT on that £10k? Or does the 7 year rule apply irrespective of the NRB?

Keep_pedalling

The 7 year rule applies regardless of the size of your estate, but it never increase the amount of IHT that needs to be paid. Your estate would not pay any whether you gift or not.

StevieD54

Keep_pedalling said:

The 7 year rule applies regardless of the size of your estate

So I gift someone £10k, but leave only £300k in my estate when I die the following week. IHT payable or not payable on the £10k?

HappyHarry

StevieD54 said:

Keep_pedalling said:

The 7 year rule applies regardless of the size of your estate

So I gift someone £10k, but leave only £300k in my estate when I die the following week. IHT payable or not payable on the £10k?

Not. None of your estate - including the gifts - exceed the £325,000Nil Rate Band.

p00hsticks

StevieD54 said:

Keep_pedalling said:

The 7 year rule applies regardless of the size of your estate

So I gift someone £10k, but leave only £300k in my estate when I die the following week. IHT payable or not payable on the £10k?

Think of it as the gift still forming part of your estate  as it was given within 7 years of your death. So your estate is effectively £310k and no IHT is due (but if you are married, then I think that any NRB inherited by a surviving spouse will be reduced by £10k). 

poseidon1

p00hsticks said:

StevieD54 said:

Keep_pedalling said:

The 7 year rule applies regardless of the size of your estate

So I gift someone £10k, but leave only £300k in my estate when I die the following week. IHT payable or not payable on the £10k?

Think of it as the gift still forming part of your estate  as it was given within 7 years of your death. So your estate is effectively £310k and no IHT is due (but if you are married, then I think that any NRB inherited by a surviving spouse will be reduced by £10k). 

A little bit more nuanced than that.

If OP had not previously used his £3,000 annual exemption in previous tax year and currently, then £6,000 of the gift  IHT exempt  outright,  leaving only £4,000 to eat into his NRB depending on marital status.

Either way no circumstance under which either OP's estate or his friend is on the hook for IHT on the numbers quoted.