Making large gift. How do I allow for IHT?

sclare

My parent died with no cash in their estate. However, they owned a property jointly with me, which reverted to me by survivorship. As my sibling didn't get anything from the estate (though they benefited from a large gift from her when she was alive), I wish to share some of the proceeds from the property which has now been sold. However the proceeds take me over the IHT allowance, so my children would end up paying tax on the money I give to my sibling.

Any advice on how to manage this would be welcome. Giving my sibling half would penalise my children on my death. So what proportion would you advise, which would leave my children an extra amount to pay the IHT bill?

If it helps, the proceeds amount to apx £200k

Isthisforreal99

Quite simply, if you don't die within 7 years of making the gift there are zero tax implications. To be clear, any tax is not due by your children but your estate.

For a gift of that size I would suggest seeking some professional advice.

Keep_pedalling

On your previous thread you said you were a widow and that you would be over the IHT limit after the three exemptions, but there are actually 4, NRB + RNRB+ Transferable NRB + Transferable RNRB so you could have up to £1M in exemptions, depending on the value of your home and if any of your spouses’ NRB was used.

As you owned the rental property as joint tenants you can’t use a deed of variation to avoid IHT on the gift, but if you are in good heath 7 year term insurance could be an option to cover any IHT caused by you dying within 7 years of making the gift.

sclare

Thanks. As all is now resolved regarding the sale of the property, probate and my parents debts, we are ready to go, so I thought I'd refresh the question.

The short term insurance isn't really viable due to my age (70 with some health concerns) and yes, the tax will be paid from the estate, but the estate will go to my children, so in effect, they will pay the tax.

And yes, part of me thinks that if I die with the full exemptions you mention, paying that tax won't be the end of the world. But I still want to get things right as accurately as I can and take in all the different pros and cons.

Ib06

You may be able to use a "Deed of Variation" to change the terms of the will.

"A Deed of Variation allows beneficiaries to alter a will or intestacy rules within two years of a death, redistributing assets to change tax liabilities or alter inheritance, provided all affected parties agree. It acts as if the deceased made the changes, often used for tax efficiency or family adjustments."

p00hsticks

https://forums.moneysavingexpert.com/discussion/comment/81970199#Comment_81970199

I beleive that you have to do a Deed of Variation within two years of the death though, and I suspect from the OPs previous posts that we may be outside of that timeframe now…

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/81970199#Comment_81970199

As per my previous post a deed of variation is not possible where you inherit via succession. Had the property been owned as tenants in common rather than joint tenants then this would have been possible.

Keep_pedalling

How far over your exemptions would this potencial gift take you into IHT terretory?

sclare

https://forums.moneysavingexpert.com/discussion/comment/81970339#Comment_81970339

That's a difficult question, as the valuation I've been given on my house seems extremely optimistic. But if that's taken into account, I'd be £50k-£60k over at this point. And of course it is very likely to go up in the next seven years, particularly as there's a huge new project happening near me which is expected to raise house prices considerably.

And yes, you're right that despite feeling like an inheritance, it's not part of the estate, so a deed of variation was never an option.

GDB2222

https://forums.moneysavingexpert.com/discussion/comment/81970135#Comment_81970135

If I get this correctly, you'll be gifting £xx to your sibling, and if you die within 7 years that uses up £xx of your NRB. So, it will cost your children 40% of £xx.

Get a quote for the total cost of insurance over 7 years to cover 40% of £xx and deduct that from the amount you give to your sibling. You give that to your children, and it's up to them whether they spend it on the insurance policy or not.

sclare

Unfortunately, due to my age and (very mild) medical issues, I can't get life insurance