Inheritance tax question - gifts put into savings

jackieblack

I have recently lost both my parents, a few months apart, and have received an inheritance.
With the value of my home, and being single, this now raises the issue of inheritance tax should I meet an early demise... IHT is not something that's ever really been on my radar before so I'm trying to educate myself.

I am planning on putting some money into an account for my grandchild.  I have been reading on HMRC website and, IIUC, I think I can gift £3000 a year, and also that I can make gifts from my regular income that will be exempt should I die within 7 years of making the gift.  What I'm not clear on is whether I can do both, particularly to the same person.

Apologies in advance if I'm being dense... I've got alot going on atm and not entirely firing on all cylinders...
Thank you

mebu60

I'm interested in seeing the answers too (on behalf of a friend who will soon be in a similar position).

My understanding from very recent reading is that you can also make gifts of £250 to individuals who don't receive other gifts in a tax year, e.g. from the £3k.

I believe you can make gifts from income full stop without any comeback. Gifts from capital become exempt if you are still alive seven years after they are made. 

Very sorry to hear of your double loss, must be an emotional rollercoaster. 

poseidon1

jackieblack said:

I have recently lost both my parents, a few months apart, and have received an inheritance.
With the value of my home, and being single, this now raises the issue of inheritance tax should I meet an early demise... IHT is not something that's ever really been on my radar before so I'm trying to educate myself.

I am planning on putting some money into an account for my grandchild.  I have been reading on HMRC website and, IIUC, I think I can gift £3000 a year, and also that I can make gifts from my regular income that will be exempt should I die within 7 years of making the gift.  What I'm not clear on is whether I can do both, particularly to the same person.

Apologies in advance if I'm being dense... I've got alot going on atm and not entirely firing on all cylinders...
Thank you

They are two distinct and separate exemptions and can be made to the same person.

However the gifts out of income exemption is in fact gifts out of surplus income, and is far more complicated than it may sound given the meticulous record keeping required by you to prove the 'surplus'  income you are purporting to gift.

See attached IHT 403  ( page 8 ) to give you an idea of what's involved - my sense is with everything you have going on  (from past posts) it maybe a bit of an onerous annual undertaking compared to the straightforward annual £3k exemption  -

https://assets.publishing.service.gov.uk/media/5f60b44cd3bf7f7234487bf0/IHT403-05-20.pdf

Incidentally, don't overlook that if the last parent's death is within the last 2 years you can execute a deed of variation to gift a lump sum from your inheritance to your child, which will be treated as coming direct from the deceased parent concerned for IHT purposes.

Keep_pedalling

There is no limit on how much you can gift. You have your annual exemption of £3000, and you can make exempt gifts from income but only if your income exceeds your expendature. Larger gifts will be subject to the 7 year rule so you have to live 7 years after making the gift for it to fall out of your estate for IHT purposes. 

If your inheritance actually takes you into IHT territory, as a single parent your exempt estate will be up to £500k (possibly double that if you were widowed), there is another option if your last parent died within the last 2 years. You can pass on some of your inheritance to your children or grandchildren via a deed of variation which has the effect of changing your parents wills and that part of your inheritance will never enter your estate so will not be subject to the 7 year rule.

EthicsGradient

One more thing to add - if you didn't use your annual £3000 exemption in the last tax year, you can add it to this year, making £6000 this time (not the future, of course).

Albermarle

As said you can gift a lot more than £3K if you want. If you survive 7 years, it will be out of your estate. If by chance you do not survive 7 years, it will be counted back into your estate. However you will not have lost anything, you estate will just be back in the same position as if you had never made the gift.

However what you should not do, is make gifts that make your own finances vulnerable.
You will have hopefully many years to live ( 25% of people live into their 90's) and you will hopefully need to fund a long retirement. Plus unexpected things can happen, good and bad.
So it is sensible to think about items like IHT, but not to let worry about paying tax lead you to making poor decisions about your overall finances.

Ciprico

EthicsGradient said:

One more thing to add - if you didn't use your annual £3000 exemption in the last tax year, you can add it to this year, making £6000 this time (not the future, of course).

can you go back further than 2 years...?

EthicsGradient

Ciprico said:

EthicsGradient said:

One more thing to add - if you didn't use your annual £3000 exemption in the last tax year, you can add it to this year, making £6000 this time (not the future, of course).

can you go back further than 2 years...?

Just one year back - https://paretofp.co.uk/insights/tax-year-end-gifting/