We'd like to remind Forumites to please avoid political debate on the Forum. This is to keep it a safe and useful space for MoneySaving discussions. Threads that are - or become - political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.

Inheritance tax question

Hi all, newbie here. I am wanting to know if anyone can confirm that the 325000 IHT free allowance also applies if inheritance is gifted early? I know there are rules about 3000 per year allowed  to be gifted and also the sliding scale of 1- 7 years with extra gifts above that.

But if the estate is worth £325000, and therefore within that IHT free amoung, but the house is sold early and distrubuted, does this go under the tax free  rule,  or is  it treated as a gift, and subject  to the 1-7 year reducing scale? My common sense tells me it should be the former, but would love any further input, thank you

Comments

  • p00hsticks
    p00hsticks Posts: 14,096 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Your post is a bit confusing (at least to me). 
    Are you saying that there is an estate of someone still living that is worth worth £325,000 including a house ?
    My understanding is that if they sold the house and gave the proceeds away but then died within 7 years then the value gets added back into their estate for IHT calculation purposes. But there would be no inheritance tax to pay as the remaining estate + gift is under the IHT allowance. 

    The 'reducing scale' (taper relief) only applies if the value of the gift is over the IHT allowance, which is not the case here. 
  • Keep_pedalling
    Keep_pedalling Posts: 19,748 Forumite
    Tenth Anniversary 10,000 Posts Name Dropper Photogenic
    Any gifts not covered by exemptions, such as the £3k annual exemption, are subject to the 7 year rule, so if I gift £300k today but die 6 years later that £300k is still part of my estate for IHT  purposes (taper relief only applies if you gift more than your NRB, and only applied to the amount over that value (£325k).

    Unless this person had plenty of other assets available selling your home and giving all the proceeds away would be a very foolish thing to do and would be treated as deliberate deprivation of assets as far as benefits and care costs are concerned.
  • Albermarle
    Albermarle Posts: 26,376 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
     and also the sliding scale of 1- 7 years with extra gifts above that.

    There is a a lot of misunderstanding about taper relief/sliding scale in this situation.
    It only applies in certain circumstances and not in the case you describe.
    Any gift ( apart from the £3K) will be 100% counted back into the estate, if the giver dies within 7 years.
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 348.9K Banking & Borrowing
  • 252.3K Reduce Debt & Boost Income
  • 452.6K Spending & Discounts
  • 241.7K Work, Benefits & Business
  • 618.3K Mortgages, Homes & Bills
  • 176K Life & Family
  • 254.8K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 15.1K Coronavirus Support Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.