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IHT Query

Are any IHT exemptions available for a cash gift from father to daughter?

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I have a client who is re-training to become a psychtherapist and has encountered financial difficulty in paying her tuition fees for the remaining 4 years of the course. Her 92 year-old father has offered to gift her the monies (approx £35k), however, would prefer the gift doesn't result in an IHT liability should he not survive for 7 years afterwards (Normal Expenditure out of Income isn't an option). Does anyone have any other options?

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By Anonymous.
11th Jul 2020 15:51

None of which I am aware. There are the other exemptions if they haven't been fully exploited. May protect some parts(s) of the (total) gift which is better than none.

https://www.moneyadviceservice.org.uk/en/articles/gifts-and-exemptions-f...

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By lionofludesch
11th Jul 2020 16:20

She could get married, I suppose.

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By Paul Crowley
11th Jul 2020 16:19

Is there a Mum

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Replying to Paul Crowley:
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By lewis3199
11th Jul 2020 17:27

Paul Crowley wrote:

Is there a Mum

No
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By lionofludesch
11th Jul 2020 16:21

IHT isn't really designed to give reliefs for passing money down the family tree.

If it was, hardly anything would ever be collected.

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Replying to lionofludesch:
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By lewis3199
11th Jul 2020 17:34

Just looking for opportunities within the existing legislation I may not be aware of. Has anyone got experience of using temporary insurance to cover the PET becoming chargeable?

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Replying to lewis3199:
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By lionofludesch
11th Jul 2020 17:41

You're going to struggle with that.

It's effectively life assurance for a 92 year old.

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By frankfx
11th Jul 2020 21:03

To misquote Mark Twain
" buy wood land"
two years IHT window.

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By alicooke71
11th Jul 2020 22:06

Is father’s estate currently liable to IHT? If not, gift will not be liable to IHT. If it is liable surely that is a bigger problem for a 92 year old?

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Replying to alicooke71:
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By lionofludesch
11th Jul 2020 22:41

alicooke71 wrote:

Is father’s estate currently liable to IHT? If not, gift will not be liable to IHT. If it is liable surely that is a bigger problem for a 92 year old?

Not sure what point you're making here.

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Replying to lionofludesch:
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By Anonymous.
12th Jul 2020 14:15

lionofludesch wrote:

Not sure what point you're making here.

I suppose the point is that there will quite probably be the same IHT payable whether or not the gift is made (subject to the 'standard' small reliefs that I mentioned previously).

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By lionofludesch
12th Jul 2020 15:07

Anonymous. wrote:

lionofludesch wrote:

Not sure what point you're making here.

I suppose the point is that there will quite probably be the same IHT payable whether or not the gift is made (subject to the 'standard' small reliefs that I mentioned previously).

But who pays it? Donee or estate? And who are the legatees ?

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Replying to Anonymous.:
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By lionofludesch
12th Jul 2020 15:07

Anonymous. wrote:

lionofludesch wrote:

Not sure what point you're making here.

I suppose the point is that there will quite probably be the same IHT payable whether or not the gift is made (subject to the 'standard' small reliefs that I mentioned previously).

But who pays it? Donee or estate? And who are the legatees ?

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Replying to lionofludesch:
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By Anonymous.
12th Jul 2020 17:35

lionofludesch wrote:

Anonymous. wrote:

lionofludesch wrote:

Not sure what point you're making here.

I suppose the point is that there will quite probably be the same IHT payable whether or not the gift is made (subject to the 'standard' small reliefs that I mentioned previously).

But who pays it? Donee or estate? And who are the legatees ?

Who knows?

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By lionofludesch
12th Jul 2020 18:19

Without numbers, we are bu99ered.

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Scooby
By gainsborough
12th Jul 2020 17:54

Has the father used his 20/21 and 19/20 annual exemptions? If not, that brings the gift value down to £29K. There is then the possibility of taper relief is he survives at least 3 years.

Have you also looked into any potential NRB transferable (you mention no mother, so assume parents were married and mother is deceased?) and whether the combined amount might cover any potential death tax due on life gifts and the Estate? Also transferable RNRB for the Estate too.

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Replying to gainsborough:
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By lionofludesch
12th Jul 2020 18:16

gainsborough wrote:

Has the father used his 20/21 and 19/20 annual exemptions? If not, that brings the gift value down to £29K. There is then the possibility of taper relief is he survives at least 3 years.

Taper relief tapers the tax, not the gift. There's a decent chance that taper relief = no relief.

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Replying to lionofludesch:
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By lewis3199
13th Jul 2020 12:50

lionofludesch wrote:

gainsborough wrote:

Has the father used his 20/21 and 19/20 annual exemptions? If not, that brings the gift value down to £29K. There is then the possibility of taper relief is he survives at least 3 years.

Taper relief tapers the tax, not the gift. There's a decent chance that taper relief = no relief.

Assume NB/AE already used and NEOOI not available - it seems the general consensus, on here, is that there are no other basic reliefs available to the tune of £35k. Thanks for the contributipons, so far

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Replying to lewis3199:
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By Tax Dragon
13th Jul 2020 14:47

Those assumptions destroy my (b) below but underscore my (a) and the preceding paragraph.

Or is this a practice exam question?

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Replying to lionofludesch:
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By lewis3199
14th Jul 2020 08:11

lionofludesch wrote:

gainsborough wrote:

Has the father used his 20/21 and 19/20 annual exemptions? If not, that brings the gift value down to £29K. There is then the possibility of taper relief is he survives at least 3 years.

Taper relief tapers the tax, not the gift. There's a decent chance that taper relief = no relief.

Assume NB/AE already used and NEOOI not available - it seems the general consensus, on here, is that there are no other basic exemptions or reliefs available to the tune of £35k. Thanks for the contributions, so far

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Replying to lionofludesch:
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By lewis3199
13th Jul 2020 12:50

lionofludesch wrote:

gainsborough wrote:

Has the father used his 20/21 and 19/20 annual exemptions? If not, that brings the gift value down to £29K. There is then the possibility of taper relief is he survives at least 3 years.

Taper relief tapers the tax, not the gift. There's a decent chance that taper relief = no relief.

Assume NB/AE already used and NEOOI not available - it seems the general consensus, on here, is that there are no other basic reliefs available to the tune of £35k. Thanks for the contributipons, so far

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Replying to lionofludesch:
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By lewis3199
16th Jul 2020 12:38

..

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By Tax Dragon
13th Jul 2020 06:57

The father should be talking to his own accountant if he is concerned about IHT. (Your comments point both ways as to whether there is a latent liability to tax. If there is, then he's currently going about the planning all wrong.)

Congrats though on getting the most comments I can remember seeing on an IHT thread. Double congrats since there's a fair chance that a) you're thinking of "advising" a non-client and b) there's no IHT to worry about.

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By Justin Bryant
14th Jul 2020 11:32

Here's one more comment and (completely irrelevant to the question) a much better and more interesting IHT scheme in the link below:

https://www.icaew.com/technical/farming-and-rural-business/general/inher...

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By Joe Soap
14th Jul 2020 16:06

If a parent pays for his child's education is that a PET?
Maybe it needs to be a full time course? Maybe it is?

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Replying to Joe Soap:
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By Tax Dragon
14th Jul 2020 16:45

lewis3199 wrote:

I have a client who is re-training to become a psychtherapist and has encountered financial difficulty in paying her tuition fees for the remaining 4 years of the course.

s11(1)(b)IHTA wrote:

...not later than the year in which he attains the age of eighteen or, after attaining that age, ceases to undergo full-time education or training.

IHTM04175 wrote:

A disposition in favour of a child who had clearly ceased full-time education and taken a job (other than a purely temporary one) but had later decided to resume full-time education is not within IHTA84/S11.

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By Paul Crowley
14th Jul 2020 16:35

Should not Dad be doing some estate planning?
Are lifetime gifts cheaper than estate on death?

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Replying to Paul Crowley:
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By Tax Dragon
14th Jul 2020 16:47

1) Yes. See Tax Dragon, 13th Jul 2020 06:57.
2) Depends, but it's not unlikely.

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By lionofludesch
14th Jul 2020 16:54

Paul Crowley wrote:

Should not Dad be doing some estate planning?
Are lifetime gifts cheaper than estate on death?

We used to have different rates for lifetime and death transfers.

Ah - those were the days !!

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Replying to lionofludesch:
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By Paul Crowley
14th Jul 2020 18:35

I thought that there was still some trust malarkey in the system.
Trouble is we are second guessing the non-client.

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Replying to lionofludesch:
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By Tax Dragon
14th Jul 2020 20:03

lionofludesch wrote:

We used to have different rates for lifetime and death transfers.

Ah - those were the days !!

Is that true? So were there a lot of deathbed gifts in those days to utilise the lower rates? Seems an obvious thing to do. (Unless there was a catch-up charge on death - like there is now, in fact.)

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Replying to Tax Dragon:
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By Paul Crowley
14th Jul 2020 20:19

The trouble is Brits love their pets more than lifetime gifts

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Replying to Tax Dragon:
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By lionofludesch
14th Jul 2020 22:15

Tax Dragon wrote:

lionofludesch wrote:

We used to have different rates for lifetime and death transfers.

Ah - those were the days !!

Is that true? So were there a lot of deathbed gifts in those days to utilise the lower rates? Seems an obvious thing to do. (Unless there was a catch-up charge on death - like there is now, in fact.)

Yes. Typically half on lifetime gifts. Up to about 1988 I think. Including its predecessor, CTT.

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Replying to lionofludesch:
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By Paul Crowley
15th Jul 2020 10:18

Really that long ago?

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By lionofludesch
15th Jul 2020 18:36

Paul Crowley wrote:

Really that long ago?

I think so, though I've not looked it up.

Lifetime rates abolished, threshold massively jacked up.

Before then, the threshold was low so tapering made more sense. There was a decent chance you'd already paid lifetime rates on a gift so tapering a percentage of the extra tax on death did give a benefit.

All a long time ago now, though. I may have mis-remembered.

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Replying to lionofludesch:
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By Tax Dragon
16th Jul 2020 14:37

lionofludesch wrote:

All a long time ago now, though. I may have mis-remembered.

I reckon so. Lifetime rates are still with us. Well, rate, singular. 20%. I've seen some of Mum's grossing up comps from when there were multiple rates - I'd guess that's the sort of thing you are fondly remembering.

I don't know when PETs came in - before my time. Was it with the introduction of IHT? The relevance of lifetime rate(s) would have hugely reduced when that happened. So you'd be forgiven for thinking they'd died.

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Replying to Tax Dragon:
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By lionofludesch
16th Jul 2020 15:47

Tax Dragon wrote:

I don't know when PETs came in - before my time. Was it with the introduction of IHT? The relevance of lifetime rate(s) would have hugely reduced when that happened. So you'd be forgiven for thinking they'd died.

PEts were a development of what we had before. Gifts used to be charged at lifetime rates, jacked up to death rates if the donor died within 7 years. So you paid the difference between lifetime and death rates, subject to tapering.

When lifetime rates were abolished, it was the same principle but you paid the difference between death rates and nothing. Lifetime gifts were renamed PETs.

Maybe some websearcher can fish out when all this happened.

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Replying to lionofludesch:
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By Tax Dragon
16th Jul 2020 16:10

Lion, we still have chargeable lifetime transfers, taxed at half-rate topped up to full rate (subject to taper) on death within seven years. All those rules are still there, mate. (Well, I'd guess they are because it works exactly as you say.)

Any lifetime transfer is chargeable unless it's exempt; a PET is exempt for that definition. (So - a PET isn't a nil rate transfer. It's an exempt one. Unless the exemption fails.) I don't think this is mere pedantry on my part - it helps to understand the concepts/definitions.

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By lionofludesch
16th Jul 2020 16:16

I knew it was summat like that.

I'd go on a course but it seems pointless now.

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By Paul Crowley
15th Jul 2020 10:07

Dad gives daughter a Tax inclusive figure.
Daughter repays tax element to dad if dad survives?

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By lewis3199
16th Jul 2020 12:36

Paul Crowley wrote:

Dad gives daughter a Tax inclusive figure.
Daughter repays tax element to dad if dad survives?

.....the objective is tax-planning for the event father doesn't survive 3/7 years

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Replying to lewis3199:
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By Tax Dragon
16th Jul 2020 14:57

I'm not sure what you are wanting here. Your client is receiving a gift. I don't see what tax planning she can do, beyond keeping enough aside to pay tax on it if need be. Does that help?

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By pauljohnston
15th Jul 2020 11:11

Whether or not the daughter pays the IHT depends on the wording in the will. If it includes tax on lifetime gifts the daughter wont have any fear of a tax claim

Tell him to make the whole payment now he may well last 3+ years

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By neil3345
15th Jul 2020 14:04

I know there is an exemption for dispositions in respect of the maintenance and education of a child but it wouldn't apply in this case.
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04175
N

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Replying to neil3345:
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By Tax Dragon
16th Jul 2020 14:42

I've done a Crowley and given the forum a full 24+ hours to respond. I reckon it would have happened within minutes had you confused outside the scope with exempt in a VAT setting.

S11 does not provide an exemption. It recognises that looking after your family is, in effect, outside the scope of IHT.

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