Hypothetical Question about house ownership...

[Whitey Grandad]

Are you sure about that, as that is a major loophole for avoiding death duties. Eg a house could be gifted in installments. i can't see that being allowed,and why would there be a maximum gift allowed if that is the case?

 

Yes, all gifts made 7 years before death are tax-free. After that there is a graduated scale but this does not reduce the amount of tax that must be paid, contrary to what might be implied in the financial columns in the Sunday papers. The graduation only applies to what proportion of the money is claimed from the estate, and how much from the gifts. Gifting a house in instalments would only save tax if the gifts were made before the 7 years.The maximum annual gift is there to avoid small sums being liable, and to stop you giving away a large nest-egg in instalments.

[Whitey Grandad]

So you COULD give away millions if you wanted to. However, should you die within 7 years of making such a gift, your estate would be eligible for IHT. Is that right? How would HMRC know? For example, when my mother died last year I gave each of my children a substantial sum from her estate (that had been willed to me). If I pop my clogs tomorrow, are those sums liable for inclusion for IHT (since they'd come out of my estate so to speak)?

 

You have to sign a form declaring the amount of the assets of the estate. There is even a declaration form for estates which are under, but close to, the exempt threshold. These gifts to your children are part of your 'potentially exempt amount'. Depending on the amounts involved, I would advise you now to consider a 'deed of variation' which effectively changes the terms of the will and passes these gifts direct from your mother to your children. This amounts to re-writing the will and can be done so long as all the beneficiaries agree, and if children are involved in the will, providing they are not disadvantaged. You have (I think) two years from death to do this and these days the deed must be registered and there must be a declaration that this is being done for 'inheritance tax purposes'. This would take these gifts out of your estate when you die. It might be worth your while taking professional advice. Good luck!