Confused about inheritance tax and gifts...

[john2485]

Hi all

 

Sorry but I'm not sure what section to put this into!

 

My mother whom is terminally ill is wanting to give all her three kids some of her savings before she dies, now I have read lots about this and still get confused! Apparently she can give any amount of money to whom she wants while she is alive! But if she dies before the 7 year point any monies she has gifted become taxable as part of the estate?

 

Does this only count if the estates savings are over the £325000 threshold. Or is this any amount? I can't make head or tail of it...

Could anybody explain in laymens terms?

 

Thanks so much

 

John.

[honeybee13]

Hello John. I'm sorry to hear about your mum.

 

As you say, IHT is only payable on estates over £325,000. If your mother gives away money now it won't be taxed while she's alive.

 

Do you know if you if her assets are worth over £325,000?

 

HB

[citizenB]

https://www.moneyadviceservice.org.uk/en/articles/gifts-and-exemptions-from-inheritance-tax

 

 

How much can I gift in lump sums?

 

You don’t want your children to face an unexpected inheritance tax bill because of money you’ve handed over during your lifetime.

 

However, each of us has an annual inheritance tax gift allowance. This enables you to give some money away each year to your children without needing to worry about this tax. The annual allowance for 2014/15 is £3,000 per person.

 

Remember this is your personal allowance, so you cannot give each of your children £3,000 each. You would need to split it among your children, if you’re giving money to more than one.

 

https://www.saga.co.uk/magazine/money/personal-finance/giving/tax-and-gifting-money-to-children

 

[john2485]

Hello John. I'm sorry to hear about your mum.

 

As you say, IHT is only payable on estates over £325,000. If your mother gives away money now it won't be taxed while she's alive.

 

Do you know if you if her assets are worth over £325,000?

 

HB

 

Thanks for the reply

 

No the funds are no were near that amount but was concerned also about the 3000 threshold...

[BazzaS]

Hi all

 

Sorry but I'm not sure what section to put this into!

 

My mother whom is terminally ill is wanting to give all her three kids some of her savings before she dies, now I have read lots about this and still get confused! Apparently she can give any amount of money to whom she wants while she is alive! But if she dies before the 7 year point any monies she has gifted become taxable as part of the estate?

 

Does this only count if the estates savings are over the £325000 threshold. Or is this any amount? I can't make head or tail of it...

Could anybody explain in laymens terms?

 

Thanks so much

 

John.

 

Sorry to hear about your Mum. There is not a lot anyone can say that helps with the illness side of things, but I hope I can answer some of your Inheritance Tax (IHT) queries.

 

The £325,000 is the nil Rate band (NRB), and this sum is IHT exempt (well, technically it isn't exempt, but gets charged at 0%, so "same difference").

So, if her gifts during the last 7 years of her life, and in her will are less than the NRB (currently £325,000), there is no IHT to pay.

None. Nil. Nada. Zip (and you can stop reading here: query answered!).

 

Creation of a trust during a lifetime is a lifetime chargeable transfer (LCT), and attracts Inheritance Tax (IHT) at 20% straight away, if not within the NRB. It is also potentially exempt (see below!), and if the donor does with 7 years may be liable to further IHT.

 

Any gift made during lifetime (that isn't a trust, and isn't exempt for another reason) is a 'potentially exempt transfer' (PET) : if the donor survives seven years the gift becomes fully exempt (which is why it is "POTENTIALLY" exempt - until the donor dies within 7 years when it isn't exempt, or survives 7 years when it becomes fully exempt).

 

There is also a "small gift" exemption (up to £250 per person, from memory), and a £3,000 annual exemption per year (that can be carried forward a year, so if she hasn't already used these, there is £6k annual exemption available).

 

Since your Mum isn't expected to survive seven years, any transfer she makes above a total £325,000 that isn't exempt for another reason is likely to be chargeable to IHT. Anything made during lifetime or in her will that isn't exempt for another reason is chargeable, although the first £325,000 is charged at the zero rate.

 

Is your Mum still married?. Transfers to spouse are IHT exempt, so she could:

a) give the 3 kids £325,000 between them, either now or by will (if in a will, it is worth stating "up to the nil rate band) rather than "£325,000" in case the NRB value is changed before the will becomes active)

and

b) give the rest ("my residuary estate"), by will to her spouse, to minimise IHT.

 

There are other exemptions, too, and if any of these might apply she ought to get qualified legal advice to avoid a potentially expensive (IHT) error.

Are there any of her children aged under 18 (where a "bereaved minors trust" can limit IHT liability), or

aged 18-25? (where a bereaved young person's trust isn't quite as advantageous, but still offers some help!)

 

There are also various reliefs (rather than exemptions) relating to agricultural property (so if she owns a farm), and businesses (so if she has shares in an unlisted company). Shares in listed companies don't attract relief unless a "controlling interest" is held.

https://www.gov.uk/business-relief-inheritance-tax/what-qualifies-for-business-relief

 

If your Mum hasn't made a will she should consider doing so. She might consider taking legal advice to both ensure her will meets her wishes, and to minimise the IHT liability on her estate if it is in excess of £325,000, by making use of all the potential allowances, exemptions and reliefs.

 

If she was thinking of making a donation to charity in her will: gifts to charities are IHT exempt. Additionally, a gift to charity of 10% of the "net value" of the estate reduces the IHT payable on any non-exempt sum from 40% to 36% : so in some circumstances the non-charity beneficiaries get more than they would if there had been a smaller donation to charity (or no donation to charity) - the government gets less IHT.

https://www.gov.uk/inheritance-tax-reduced-rate-calculator

 

I hope this helps, and hasn't confused things further!.

[honeybee13]

If your mother hasn't made any other gifts in the last 7 years, then I don't think there will be IHT to pay.

 

Don't worry about the £3000 threshold if that's the case.

 

HB

[BazzaS]

Thanks for the reply

 

No the funds are no were near that amount but was concerned also about the 3000 threshold...

 

Well, you can ignore my long reply then

 

the £3,000 figure comes from the annual exemption. This might be relevant if her estate was going to be over £325,000, but as it isn't, the bottom line is:

 

No Inheritance Tax liability, as it will all be within her Nil Rate Band (so taxed at 0%, no IHT to pay).

[AndyOrch]

Thread moved to General legal Issues

 

Andy

[john2485]

Sorry to hear about your Mum. There is not a lot anyone can say that helps with the illness side of things, but I hope I can answer some of your Inheritance Tax (IHT) queries.

 

The £325,000 is the nil Rate band (NRB), and this sum is IHT exempt (well, technically it isn't exempt, but gets charged at 0%, so "same difference").

So, if her gifts during the last 7 years of her life, and in her will are less than the NRB (currently £325,000), there is no IHT to pay.

None. Nil. Nada. Zip (and you can stop reading here: query answered!).

 

Creation of a trust during a lifetime is a lifetime chargeable transfer (LCT), and attracts Inheritance Tax (IHT) at 20% straight away, if not within the NRB. It is also potentially exempt (see below!), and if the donor does with 7 years may be liable to further IHT.

 

Any gift made during lifetime (that isn't a trust, and isn't exempt for another reason) is a 'potentially exempt transfer' (PET) : if the donor survives seven years the gift becomes fully exempt (which is why it is "POTENTIALLY" exempt - until the donor dies within 7 years when it isn't exempt, or survives 7 years when it becomes fully exempt).

 

There is also a "small gift" exemption (up to £250 per person, from memory), and a £3,000 annual exemption per year (that can be carried forward a year, so if she hasn't already used these, there is £6k annual exemption available).

 

Since your Mum isn't expected to survive seven years, any transfer she makes above a total £325,000 that isn't exempt for another reason is likely to be chargeable to IHT. Anything made during lifetime or in her will that isn't exempt for another reason is chargeable, although the first £325,000 is charged at the zero rate.

 

Is your Mum still married?. Transfers to spouse are IHT exempt, so she could:

a) give the 3 kids £325,000 between them, either now or by will (if in a will, it is worth stating "up to the nil rate band) rather than "£325,000" in case the NRB value is changed before the will becomes active)

and

b) give the rest ("my residuary estate"), by will to her spouse, to minimise IHT.

 

There are other exemptions, too, and if any of these might apply she ought to get qualified legal advice to avoid a potentially expensive (IHT) error.

Are there any of her children aged under 18 (where a "bereaved minors trust" can limit IHT liability), or

aged 18-25? (where a bereaved young person's trust isn't quite as advantageous, but still offers some help!)

 

There are also various reliefs (rather than exemptions) relating to agricultural property (so if she owns a farm), and businesses (so if she has shares in an unlisted company). Shares in listed companies don't attract relief unless a "controlling interest" is held.

https://www.gov.uk/business-relief-inheritance-tax/what-qualifies-for-business-relief

 

If your Mum hasn't made a will she should consider doing so. She might consider taking legal advice to both ensure her will meets her wishes, and to minimise the IHT liability on her estate if it is in excess of £325,000, by making use of all the potential allowances, exemptions and reliefs.

 

If she was thinking of making a donation to charity in her will: gifts to charities are IHT exempt. Additionally, a gift to charity of 10% of the "net value" of the estate reduces the IHT payable on any non-exempt sum from 40% to 36% : so in some circumstances the non-charity beneficiaries get more than they would if there had been a smaller donation to charity (or no donation to charity) - the government gets less IHT.

https://www.gov.uk/inheritance-tax-reduced-rate-calculator

 

I hope this helps, and hasn't confused things further!.

 

Thanks so much this helps a lot