IHT implications of sibling not paying rent to parent

[WildDecember]

Hi,

I'm looking for some advice about IHT and what is considered 'gifts'. I have one surviving parent who is elderly and who has quite a substantial estate after inheriting from my other parent. I have a sibling who lives in a property owned by my parent; they have a tenancy agreement and are supposed to pay rent. I've recently discovered that they stopped paying rent some time ago, and on top of this, my parent has been giving them large sums of money.

My parent previously took advice from a solicitor about IHT, and I believed that they understood they couldn't give more than £3000 in one tax year. Am I right that the loss of rent will be counted as 'gifts' to my sibling and will come out of any IHT allowance?

Allowing a family member to live rent free in a property does not count as a gift for IHT purposes.

"Am I right that the loss of rent will be counted as 'gifts' to my sibling and will come out of any IHT allowance?"

Assuming that you live in the UK, then the answer is no.

"...and on top of this, my parent has been giving them large sums of money."

This, in contrast, is very definitely counted as being gifts for IHT purposes.

"...they couldn't give more than £3000 in one tax year"

It depends. If you are giving gifts out of your savings above various amounts (eg you can also give a child £5k on the occasion of their marriage) then, yes, they do become a Potentially Exempt Transfer (PET).

However, if you give money regularly from your income then you can give as much as you like as long as you can afford it without affecting your own standard of living. This is referred to as "normal expenditure out of income"

So, for example, if the parent could comfortably afford to give their child £1,000 per month out of their income then this is totally disregarded for IHT purposes.

You can also combine this with the £3,000 allowance from savings.

So, in this example, a parent would give the child £12k per year from their income and also £3k per year from their savings and it would be excluded from their estate when it comes to IHT.

Also, don't forget that any gifts made more than seven years before death are also ignored.