Inheritance tax - gift

[Confusedretax]

If a parent gifts £10k to a child but dies before 7 years how much inheritance tax is due if they carry over the £3k allowance from the year before ? I've done the online calculator and it says no tax is due.

Had this person now passed away? If so, what the overall size of the estate when they died?

i think it depends on how many years into the 7 years they were from the date of the gift, and how many lots of £3k you’re wanting to carry over, as the IHT liability tapers during the 7 years

It depends if the estate is over the IHT threshold. Tax is paid by the estate before there are further distributions.

You might be muddling yourself with the CGT allowance of £3k?
it’s a tapered level of tax depending on the length of time from gift to death.

There’s a bit on the iht400 where it has to be declared and the date it was gifted and then is worked out on estate as a whole, if the estate comes from a married couple with a house passing to their child(ren) the estate can be up to £1m before any tax is due.

The person passed away 2 years after the gift. Their estate is roughly 570,000 and is being left to their children .

The estate is from a married couple, leaving it to their children.

No, there’s a £3k per year exemption for IHT as well.

I assume the first spouse left everything to the second?
In which case, the second has the full IHT exemption of £375k x 2, so £750k.
If the estate includes their house, that’s another £250k exemption, but you don’t need that anyway.

Sounds like no IHT would be due if the full estate is £570k - provided the first spouse passed on their full exemption. In which case, no need to worry about the gift.

Yes, the threshold for inheritance tax on the estate of the remaining member of a married couple, is a minimum of £750k, so there's no tax to pay on the gift.

If it is out of income rather than savings the seven year rule does not apply, and bear in mind each parent has annual allowances to use.

Thanks all . Does the first deceased parent's allowance automatically pass to the second parent?

If they were married, yes.

As always, there’s a load of comments from unqualified people who don’t really understand the rules, who is totally unhelpful for the OP.
There’s no IHT due on the gift because it’s within the general nil rate band allowance. What it does is uses up £10,000 of the allowance, reducing the amount available to the estate. Assuming no other gifts have been made, you should be able to offset the annual gift allowance (£3k). You then use the reduced nil rate band allowance to work out if the estate owes any tax.
Just a reminder, even if there’s no IHT you still need to fill in an IHT400 if you are claiming the residence nil rate band.

Thank you. They were married

Where on earth have you got this figure from?!?! It’s not right. It could be £650k but it entirely depends on what happened in the estate of the first spouse, whether they left any legacies and whether they made any lifetime gifts

Thank you. I did wonder, hence me asking . So if the estate is worth £570k minus £10k gift, then the estate is now worth ££560k . With the joint allowance of £750k the estate falls below the tax threshold?

The full estate was left to the surviving spouse.

As always, there’s a load of comments from unqualified people who don’t really understand the rules, who is totally unhelpful for the OP.

Yes, because the rules on IHT are notoriously complicated and perhaps that’s one reason why there was a 41% increase last year in investigations by HMRC.

No, the estate would still be £570k, the NRB would be reduced. I strongly advise you get a solicitor or accountant to help you with the IHT400 at least, even if you deal with the rest of the estate yourself.

I've just had a quick look at the IHT400 form , it is a bit daunting.
If the £10k gift was paid back to the parent after their death, would it still have to be declared?

It wouldn’t be a gift if you paid it back though. At worst the value of the gift, or a proportion of it if less than seven years have passed, is included in the valuation of the estate for iht purposes.

I think we do need a solicitor, it's so confusing! This is from the gov website - "People you give gifts to might have to pay Inheritance Tax, but only if you give away more than £325,000 and die within 7 years"

Even the government don’t understand their own rules! The wording is confusing because I always thought the estate pays the IHT, not the recipient of the gift.

I’m in a similar situation to you but have decided to see a solicitor to get clarity on it all.

I've just done the inheritance tax calculator again and it's come back saying no tax is due 😵‍💫