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IHT - asset gifted to kids

IHT - joint owned asset gifted to kids and then one of the parents dies < 7 years?

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Husband and wife clients jointly own a residential property that could be gifted to their son which would remove their liability to IHT assuming they survived 7 years. It's also very low CGT at current market values hence a potentially ideal situation.

Question I had is that if for example one of the parents died immediately after gifting the property, I believe that the value of the gift would be added to the estate of the deceased but then I am not sure. Does the fact that all other assets of the decased would be bequested to the surviving spouse protect this gift value from being taxed or would it be treated entirely separately and taxed @ 40% in this case?

Thank you 

      

Replies (5)

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By DJKL
04th Aug 2021 10:22

Allowance? Value of gift?

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By davebrown123
04th Aug 2021 10:28

Hi
Value of gift £235k (total), total value of remainder of estate on death £980k,both nil rate bands and full main residence relief to pass to surviving spouse

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By Hugo Fair
04th Aug 2021 10:29

Who are the parties to the gift(s)? I'm presuming the property is currently owned 50:50 by each parent and that there are therefore two separate gifts - one by each parent of their share to their son?

If so and one parent dies immediately after making their gift, then it is only their Estate that is in question ... and this will indeed rescind the value of the gift (not the gift itself) in terms of potential IHT, by being added back into the value of assets.

However your final question "Does the fact that all other assets of the deceased would be bequested to the surviving spouse protect this gift value from being taxed or would it be treated entirely separately and taxed @ 40% in this case?" is unanswerable as it stands.
Bequests to the surviving spouse will (in most cases) be free of IHT, but IHT on the estate still needs to be calculated ... which may or may not result in IHT being payable, depending on a number of factors (not least being the value of the 'gift' and any allowances available on the estate).

Also note: if the second parent then dies within 7 years of the gift there will be no opportunity for that estate to avail itself of 'bequests to spouse' exemptions - but a portion of the 2nd gift will be added back to the value of this estate for IHT purposes.

For someone who keeps asking IHT questions, you really should put your clients in contact with a specialist if you're on the verge of giving them advice.

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By davebrown123
04th Aug 2021 13:11

Thank you for your mail and I have already referred clients to a specialist as I won't advise when I do not know for certain the answers but in this case, I was asking for my own benefit as whilst not in a position to advice specifically, I still am interested in learning a bit more about it.

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Replying to davebrown123:
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By Tax Dragon
04th Aug 2021 14:51

The eventual answer is that total gifts within seven years of death (where the excess over AEs is kept under NRB for each spouse) reduce (or come off) the £1m figure you talked about in your last thread. There's no tax on the gifts within those limits.

Thus, ceteris paribus (which of course is a fiction, but what else do we have?) such gifts have no effect on IHT on the parents if they both die within seven years.

Obviously there are caveats. But (inspired by Jason) I am using HMRC as a role model - not giving tax/planning advice, simply answering the question you ask based on the words you use.

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