IHT Query

IHT Query

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Is it correct that if a father gives his son any money and lives for 7 years there is no tax implications?

Also if the son gives 50k or 100k to the father does the same 7 year rule apply and also to other family members?
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By User deleted
24th Jan 2006 15:51

Yes - true
Yes if a father gives a son cash it is a potentially exempt transfer and no inheritance tax is applied immediately no matter how large the gift. Up to £275,000 (05/06 value)will be exempt from inheritance tax anyway on the basis that the first £275,000 of any estate is inheritance tax free. If 7 years pass from the gift you can ignore that gift when calculating any inheritance tax and use your £275,000 tax-free band against other assets. In addition £3,000 a year can be passed on totally tax free - and that increases to a maximum £6,000 if no money was passed on in the previous year (but no more). There are some additional cash tax-free amounts that can be given on special occassions such as marriage by family members.

The problem is if the parent dies within 7 years - then any amount over these allowances falls within the charge to tax at 40%.

Note also that this is only for certain types of asset - few people have large sums of cash to give away - THIS IS NOT THE CASE FOR EVERY TYPE OF ASSET - especially the main residence of the donor. As such you must be very careful to check the specific rules that apply for what you give away - and I would recommend taking professional advice if a large sum is at stake. Some parents also worry that such a cash gift could be spent foolishly - hence the large use of discretionary trusts in the super-rich.

The rules are the same regardless of who the donor and lucky recipient are. But usually people plan on gifting their wordly goods to the next generation, not back to the last.

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Me!
By nigelburge
24th Jan 2006 16:36

Beware POAT
To add to what Rachel said about IHT.

If the son uses the money to buy a house in which the father subsequently lives,(and vice versa), the father (or son) is potentially liable to the Pre-owned Assets Tax.

I also recommend seeking expert professional advice in this minefield.

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