Max lifetime 'Gift' limit for Inheritance tax / 7yr rule?

[The Hack]

Would someone involved in the IHT planning business please clarify if there is any limit on the value of assets (cash & property) that can be gifted from father to son and which would be IHT free if the father survived for at least 7yrs?

Thank you!

[Brighty]

Would someone involved in the IHT planning business please clarify if there is any limit on the value of assets (cash & property) that can be gifted from father to son and which would be IHT free if the father survived for at least 7yrs?

Thank you!

There isn't one as far as i know, you can give him whatever you like. If you die within 7yrs, it's still counted as yours for IHT, after 7 years it isn't
There will though be a capital gains issue, and anything you give away will be counted as 'deprivation of assets' should you need to go into a state funded care home at any point
If there are any rental properties in there, then the income becomes your sons from when the transfer happens, so it will be his for income tax purposes.
Are you aware of the new IHT nil rate band? Means you will soon be able to leave upto £500k (£1mill if you're married) and still be free of IHT?

[draftsmann]

There is no upper or lifetime limit for potentially exempt transfers.

[MB2]

I think gifts out of income shouldn't affect the gifter's lifestyle or similar and gifts from assets have to be "no strings attached and completely separate" so no "gifting" the family home but still living in it, but there isn't a limit to clean PET and even if the 7 years isn't passed the taper relief is still useful.

One thing to remember if the 7 years isn't completed then it is the estate that is liable for the tax not the receiver of the gift so need to ensure are sufficient funds to not affect other parts of the will completing. I would expect HMRC come after the receiver if nothing less and tax to be paid but I don't know.

[The Hack]

...but what about £325k (incl property & cash) maximum lifetime gift number that I've seen bandied around? On the .Gov IHT website.

I'm confused! :)

[draftsmann]

...but what about £325k (incl property & cash) maximum lifetime gift number that I've seen bandied around? On the .Gov IHT website.

I'm confused! :)

To keep this as simple as possible... the IHT rules distinguish between different types of gift.

The kind of gift we have been discussing in this thread is a simple, outright gift between individuals - called a "potentially exempt transfer" because it is presumed exempt when made, so no tax is payable at the time of the gift, and provided the donor survives seven years the exemption is confirmed so no tax is payable at all. There is no lifetime limit for such gifts.

Gifts into most kinds of trust (sometimes called "settled gifts") are subject to different IHT rules. These rules have seen some tightening in recent years - there was a radical recategorising of trusts in the Finance Act 2006 which brought gifts onto certain commonly-used kinds of trust out of the potentially exempt transfer regime and into the "relevant property" regime for trusts. Under the relevant property rules a trust is treated as an estate in its own right, with its own nil rate band (ie the first £325k based on the current threshold is taxed at zero per cent, with the balance taxable at special rates that apply to trusts).

There used to be considerable scope for tax planning by taking advantage of what were fairly lax "related settlement" rules. Essentially, provided someone set up multiple trusts on separate days (even if they were consecutive days), each trust would benefit from its own nil rate band - so a gift of assets such as shares expected to grow significantly could be spread between several trusts so as to reduce the IHT exposure.

Several years ago the UK government proposed revising these rules so that an individual would have a "lifetime nil rate band" that would be divided between however many trusts he or she created- you may have happened upon some commentary on the consultation for this when you were Googling.

That consultation did not lead to the creation of a lifetime NRB for settled gifts, but the rules for multiple trusts were amended so as to limit the scope for the kind of planning I described above - a full analysis falls way beyond the scope of this post!

As an aside, when I began my career in trust and tax work 30-odd years ago (yes, I do this for a living...) the canon of IHT law was just about the slimmest volume compared to income tax, CGT, corporation tax, VAT, etc, so I decided to learn it inside out and become "expert" in it. IHT has traditionally been a bit of a political football, given that it is a tax on wealth, and previous Tory manifestos were proposing drastically increasing the threshold or even abolishing the tax altogether. In fact the threshold has been frozen for quite a few years now (following several decades during which it was indexed annually) and that slim volume is now much fatter due to a massive (in my opinion disproportionate) increase in aggressive anti-avoidance legislation. At least it's kept me busy.

[The Hack]

Really appreciated. You must be a barrel of fun at a party! ;)

To keep this as simple as possible... the IHT rules distinguish between different types of gift.

The kind of gift we have been discussing in this thread is a simple, outright gift between individuals - called a "potentially exempt transfer" because it is presumed exempt when made, so no tax is payable at the time of the gift, and provided the donor survives seven years the exemption is confirmed so no tax is payable at all. There is no lifetime limit for such gifts.

Gifts into most kinds of trust (sometimes called "settled gifts") are subject to different IHT rules. These rules have seen some tightening in recent years - there was a radical recategorising of trusts in the Finance Act 2006 which brought gifts onto certain commonly-used kinds of trust out of the potentially exempt transfer regime and into the "relevant property" regime for trusts. Under the relevant property rules a trust is treated as an estate in its own right, with its own nil rate band (ie the first £325k based on the current threshold is taxed at zero per cent, with the balance taxable at special rates that apply to trusts).

There used to be considerable scope for tax planning by taking advantage of what were fairly lax "related settlement" rules. Essentially, provided someone set up multiple trusts on separate days (even if they were consecutive days), each trust would benefit from its own nil rate band - so a gift of assets such as shares expected to grow significantly could be spread between several trusts so as to reduce the IHT exposure.

Several years ago the UK government proposed revising these rules so that an individual would have a "lifetime nil rate band" that would be divided between however many trusts he or she created- you may have happened upon some commentary on the consultation for this when you were Googling.

That consultation did not lead to the creation of a lifetime NRB for settled gifts, but the rules for multiple trusts were amended so as to limit the scope for the kind of planning I described above - a full analysis falls way beyond the scope of this post!

As an aside, when I began my career in trust and tax work 30-odd years ago (yes, I do this for a living...) the canon of IHT law was just about the slimmest volume compared to income tax, CGT, corporation tax, VAT, etc, so I decided to learn it inside out and become "expert" in it. IHT has traditionally been a bit of a political football, given that it is a tax on wealth, and previous Tory manifestos were proposing drastically increasing the threshold or even abolishing the tax altogether. In fact the threshold has been frozen for quite a few years now (following several decades during which it was indexed annually) and that slim volume is now much fatter due to a massive (in my opinion disproportionate) increase in aggressive anti-avoidance legislation. At least it's kept me busy.

[Scepticalist]

Out of interest. Is there a time limit on "Deprvation of Assets". If your parent goes into a home, surely they can't chase a substantial gift made years before?

[draftsmann]

Out of interest. Is there a time limit on "Deprvation of Assets". If your parent goes into a home, surely they can't chase a substantial gift made years before?

There isn't a set time limit. There is a risk that the local authority will infer intentional deprivation if the need to go into care was foreseeable at the time of the gift. If the gift was made after a slow progressive illness had been diagnosed, in theory even a gift made many years before could be taken into account.