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  • FIRST POST
    • KGMu
    • By KGMu 11th Mar 18, 9:07 AM
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    KGMu
    Inheritance Tax and grandchildren
    • #1
    • 11th Mar 18, 9:07 AM
    Inheritance Tax and grandchildren 11th Mar 18 at 9:07 AM
    If grandparents want to give their 2 grandchildren £20,000 each but then the grandparents both die within 7 years, will the gifts be subject to Inheritance Tax even though the grandparents estate won't exceed the Inheritance Tax threshold?
Page 1
    • Tom99
    • By Tom99 11th Mar 18, 9:14 AM
    • 2,227 Posts
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    Tom99
    • #2
    • 11th Mar 18, 9:14 AM
    • #2
    • 11th Mar 18, 9:14 AM
    Each grandparent can use this years £3,000 IHT allowance, carry forward last years £3,000 and on 6th April use next years £3,000.

    So up to £9,000 of each £20,000 gift will be completely free of IHT.

    The remaining £11,000 each will be deducted from their nil rate band if the die within 7 years and no IHT would be payable if their estate does not exceed this slightly reduced nil rate band.

    If one dies within 7 years and their estate is left to the surviving spouse then the survivor will inherit this slightly reduced nil rate band rather than the full nil rate band to add to their own estate.
    • Keep pedalling
    • By Keep pedalling 11th Mar 18, 5:44 PM
    • 5,089 Posts
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    Keep pedalling
    • #3
    • 11th Mar 18, 5:44 PM
    • #3
    • 11th Mar 18, 5:44 PM
    If grandparents want to give their 2 grandchildren £20,000 each but then the grandparents both die within 7 years, will the gifts be subject to Inheritance Tax even though the grandparents estate won't exceed the Inheritance Tax threshold?
    Originally posted by KGMu
    No, and even if the estate was over the threshold, that tax would come out of the remaining estate not clawed back from the grandchildren.
    • Lotak
    • By Lotak 12th Mar 18, 11:05 AM
    • 18 Posts
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    Lotak
    • #4
    • 12th Mar 18, 11:05 AM
    • #4
    • 12th Mar 18, 11:05 AM
    If the estate won't exceed the NRB of £325k, then no IHT will be due.
    Even if the estate was worth in excess of the NRB, gifts made prior to death are subtracted from the NRB first, in order of date (i.e. oldest gifts first). So if the £20k gift is the first and (for simplicity) only gift made then the NRB will be reduced by £11k (as Tom99 explained above).

    No IHT will be due on the £11k that could potentially be liable to IHT. However, the NRB will be reduced by £11k so the NRB on the estate will be £314k and not £325k
    Current Debt (excluding mortgage) - £18k
    Aim to clear all debt - Feb 2020
    Current PaD - £206
    • Credit-Crunched
    • By Credit-Crunched 13th Mar 18, 9:21 AM
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    Credit-Crunched
    • #5
    • 13th Mar 18, 9:21 AM
    • #5
    • 13th Mar 18, 9:21 AM
    No, and even if the estate was over the threshold, that tax would come out of the remaining estate not clawed back from the grandchildren.
    Originally posted by Keep pedalling
    No true, the gift would be classed as a failed PET, the recipient of the gift is liable for the tax if any is due (subject to taper relief)
    • Tom99
    • By Tom99 13th Mar 18, 9:49 AM
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    Tom99
    • #6
    • 13th Mar 18, 9:49 AM
    • #6
    • 13th Mar 18, 9:49 AM
    No true, the gift would be classed as a failed PET, the recipient of the gift is liable for the tax if any is due (subject to taper relief)
    Originally posted by Credit-Crunched
    That would only happen if the gift was over £325k and had used up all of the Nil Rate Band.
    In this case the gift is well within the Nil Rate Band so the gift is not taxable. However the residue estate will have £11,000 less NRB so will in effect pay the tax due on the gift.
    • Keep pedalling
    • By Keep pedalling 13th Mar 18, 9:52 AM
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    Keep pedalling
    • #7
    • 13th Mar 18, 9:52 AM
    • #7
    • 13th Mar 18, 9:52 AM
    No true, the gift would be classed as a failed PET, the recipient of the gift is liable for the tax if any is due (subject to taper relief)
    Originally posted by Credit-Crunched
    In practice that only really happens if people have given so much away there is not enough left in the estate to pay the tax.
    • Credit-Crunched
    • By Credit-Crunched 13th Mar 18, 10:04 AM
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    Credit-Crunched
    • #8
    • 13th Mar 18, 10:04 AM
    • #8
    • 13th Mar 18, 10:04 AM
    I agree with your comments, but I feel that it prudent to warn that the recipients 'may' be due to pay the failed PET.
    • Tom99
    • By Tom99 13th Mar 18, 10:12 AM
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    Tom99
    • #9
    • 13th Mar 18, 10:12 AM
    • #9
    • 13th Mar 18, 10:12 AM
    I agree with your comments, but I feel that it prudent to warn that the recipients 'may' be due to pay the failed PET.
    Originally posted by Credit-Crunched
    There is absolutely no way the recipient of £11,000 is ever going to be liable to tax unless £325,000 has already been given away.
    • Credit-Crunched
    • By Credit-Crunched 13th Mar 18, 11:42 AM
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    Credit-Crunched
    There is absolutely no way the recipient of £11,000 is ever going to be liable to tax unless £325,000 has already been given away.
    Originally posted by Tom99
    Was that sentence intentionally contradictory?
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