Inheritance Tax tip re records. (1 Viewer)

[ctc]

Don’t forget, if you own assets abroad they are supposed to be included too

Are they really? You could have told me earlier.

 

[PeterCarole29]

No. You would be "reserving the benefit", which negates the gift in the eyes of the Taxman.

Thanks I can understand that

 

[gus-lopez]

Have read of this

Using allowances to give tax free gifts​

Each tax year, you can also give away some money or possessions free of Inheritance Tax. How much is tax free depends on which allowances you use.

Annual exemption​

You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’.
You can give gifts or money up to £3,000 to one person or split the £3,000 between several people.
You can carry any unused annual exemption forward to the next tax year - but only for one tax year.
The tax year runs from 6 April to 5 April the following year.

Example​

In the 2019 to 2020 tax year, Mark gave £2,000 to his daughter Jane. If he died within 7 years of the gift, this would use £2,000 of his annual exemption.
In the following 2020 to 2021 tax year, Mark gave £4,000 to his other daughter Sarah. If Mark died within 7 years of the gift, this would use his annual exemption of £3,000 plus the £1,000 of annual exemption left over from the previous tax year.
Even if Mark dies within 7 years of giving these gifts, there’s no Inheritance Tax to pay.

Small gift allowance​

You can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.
Birthday or Christmas gifts you give from your regular income are exempt from Inheritance Tax.

Gifts for weddings or civil partnerships​

Each tax year, you can give a tax free gift to someone who is getting married or starting a civil partnership. You can give up to:

• £5,000 to a child
• £2,500 to a grandchild or great-grandchild
• £1,000 to any other person

If you’re giving gifts to the same person, you can combine a wedding gift allowance with any other allowance, except for the small gift allowance.
For example, you can give your child a wedding gift of £5,000 as well as £3,000 using your annual exemption in the same tax year.

If you make regular payments​

You can make regular payments to help with another person’s living costs. There’s no limit to how much you can give tax free, as long as:

• you can afford the payments after meeting your usual living costs
• you pay from your regular monthly income

These are known as ‘normal expenditure out of income’. They include:

• paying rent for your child
• paying into a savings account for a child under 18
• giving financial support to an elderly relative

If you’re giving gifts to the same person, you can combine ‘normal expenditure out of income’ with any other allowance, except for the small gift allowance.
For example, you can give your child a regular payment of £60 a month (a total of £720 a year) as well as using your annual exemption of £3,000 in the same tax year.

The 7 year rule​

No tax is due on any gifts you give if you live for 7 years after giving them - unless the gift is part of a trust. This is known as the 7 year rule.
If you die within 7 years of giving a gift and there’s Inheritance Tax to pay on it, the amount of tax due after your death depends on when you gave it.
Gifts given in the 3 years before your death are taxed at 40%.
Gifts given 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.
Taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold.

Taper relief​

Years between gift and death	Rate of tax on the gift
3 to 4 years	32%
4 to 5 years	24%
5 to 6 years	16%
6 to 7 years	8%
7 or more	0%

Giving gifts you still benefit from​

If you give something away but still benefit from it (a ‘gift with reservation’), it will count towards the value of your estate.
Gifts with reservation include:

• giving your home to a relative but still living there
• giving away a caravan but still using it for free for your holidays
• giving away a valuable painting but still displaying it in your house

Read further guidance on when a gift with reservation counts towards the estate’s value.

Keeping records of gifts you’ve given​

The person who deals with your estate will need to work out what gifts you gave in the 7 years before your death. You should keep the following records:

• what you gave and who you gave it to
• the value of the gift
• when you gave it

How Inheritance Tax on a gift is paid​

Any Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift.

Example​

Sally died on 1 July 2018. She was not married or in a civil partnership when she died.
She gave 3 gifts in the 9 years before her death:

• £50,000 to her brother 9 years before her death
• £325,000 to her sister 4 years and 2 months before her death
• £100,000 to her friend 3 years before her death

There’s no Inheritance Tax to pay on the £50,000 gift to her brother as it was given more than 7 years before she died.
There’s also no Inheritance Tax to pay on the £325,000 she gave her sister, as this is within the Inheritance Tax threshold.
But her friend must pay Inheritance Tax on her £100,000 gift at a rate of 32%, as it’s above the tax-free threshold and was given 3 years before Sally died. The Inheritance Tax due is £32,000.
Sally’s remaining estate was valued at £400,000, so the estate would pay Inheritance Tax of 40% on £400,000 (£160,000).
Read further guidance on when a gift counts towards the estate’s value, how to value it and how much Inheritance Tax may be due.

Here in spain they have a similar "Gift & inheritance" tax arrangement. Far ,far simpler than the UK: here it is a straight 35% tax on anything

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[Minxy]

Why not hollow out the spare mattress and stuff it in there?

 

[vkr15s]

Taxed to death and beyond.

 

[GyroPilot]

Are they really? You could have told me earlier.

If you're domiciled in England and Wales (or Scotland, but they are technically different jurisdictions) your worldwide assets are subject to IHT.

If you are not so domiciled, only your assets in the UK are subject to IHT.

Domicile is different to nationality, residence, etc. What is domicile?

You are born with a domicile of origin. It is normally the domicile of your father at the time of your birth, or that of your mother if you're "illegitimate". [e.g. although born in New York, Boris Johnson was born domiciled in England and Wales]

It is very difficult to shake off, and acquire what is known as a [different] "domicile of choice".

A new domicile of choice is two things, and you must demonstrate both to have a valid change of domicile.
a) actual residence in the new jurisdiction, and;
b) the settled intention to permanently or indefinitely reside in the new jurisdiction.

The onus is on you to prove these two things to the Taxman's satisfaction, but he'll only let you know his opinion once you're dead and some tasty UK IHT is then at stake!

In practice, it means severing all ties with the UK (including clubs and subscriptions, etc. ), returning very rarely for trips etc., having no second thoughts or doubts (that could be voiced by friends or relatives after your demise), and remaining settled in your new country to the end of your days (moving on to a third country could inadvertently revive your "domicile of origin" and with it your UK IHT liability!).

Many have tried to pull the wool over the Taxman's eyes, with "have my cake and eat it" half-assed attempts to die abroad in the hope of escaping the IHT. They almost all fail.

Professional advice is required from the get-go. Don't even think about it unless you are genuinely prepared to sever all ties forever with the UK...

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