Inheritance tax

[Spiderwmn]

If I gift a large sum to DD but tell her she must bank it for 7 years, which she did, would that mean she escaped inheritance tax if I died after the 7years.

If you were to die within 7 years of the gift there may be IHT liabilities (would depend on total value of estate and value of gift).
Beyond 7 years there will be no tax to pay.
You can also give annual gifts of £3k with no IHT impact.

IHT is normally paid by the estate not the recipient.

For example, If you gave your daughter £200k and sadly died in 4 years time the £200k would be added back into your estate to get the gross value for IHT. If your estate was £400k this would take your gross estate to £600k. You then deduct £325k the nil band and £175k the residential nil
band then £100k would be subject to inheritance tax. The tax would be paid out of your remaining of £400k.

What’s the point of giving her a large sum of money but telling her to keep it in the bank for 7 years? Yes, it might avoid IHT if you die after the 7 years is up, but no one is benefitting from money sitting in a bank account.

It doesn’t matter what she does with the money

If you gift a sum from savings during your life time, IHT liability is reduced on a sliding scale from 40% in the first year down to 0% you survive for 7 years.

https://www.gov.uk/inheritance-tax/gifts

Op, all of the above is correct under current legislation.

There are a lot of discussions about the way Labour are going to raise taxes in 30th Oct budget and IHT is one of the prime suspects. I remember RR saying they will make it more difficult (or remove the option of) avoiding IHT by gifting.

So you might want to transfer very quickly, and it doesn't matter if she uses the cash, but be prepared it might all change

Only amounts above the nil rate band taper, the first £325k will use up nil rate band for the full 7 years.

You should certainly use the £3k gift allowance this tax year, if nothing else.

Thanks for all the advice. I wonder if I should make a move quickly in case there are changes in the budget. I might just do that.
The reason I say she shouldn’t spend it is in case I die before the 7 years is up and there’s a demand for IHT. I’m not sure who is liable -I wouldn’t be around to sort it.

What is the size of your estate?

As PP said, the total IHT would get paid from the remainder of the estate not requiring your DD to send the money back in some way.

It doesn't matter what she does with the money. If you don't survive seven years and some IHT is payable, it is your estate which is liable, not her.

All completely untrue. The daughter would be liable on a failed pet. Pet is potentially exempt transfer which fails to get exemption if you die within 7 years. If you survive 3 plus years taper kicks in.
she could take out insurance for this
tax accountant here

Was your gift worth more than £331k?

If not, your daughter will not have IHT to pay as this amount uses your allowances and nil rate band (if you have not made other gifts).

If your estate is worth more than your available nil rate bands, your estate will be liable to pay the tax.

If you have given more than available nil rate bands, she may have to pay the tax - the maximum will be 40% though.

DH is 5 years older than me and a bit of a hoarder - we could have had this sorted 3 years ago but I don’t think he can bear to loosen his grasp on the purse.
I’m not sure I can access funds quickly enough but are you advising clients to move money before the new budget comes in?

Politely, OP - are you likely to die in the next 7 years, is there illness etc?

Breast Cancer 3years ago

If you are married & leaving everything to your DH & vice versa & you own a home which will pass to your daughter the IHT threshold is currently £1 million. Tax will be paid (by the estate) on anything above that, including the money you give your daughter if you due within 7 years.
I'm not actually clear what happens if the gift to your daughter is from you, not your DH, & you die first. Does anyone know?