Home 5 Inheritance Tax 5 Lifetime transfers and liability to IHT

Lifetime transfers and liability to IHT

9 May 2024

There are special rules concerning the liability to IHT of a transfer made during a lifetime. For example, most gifts made during a person's life are not subject to tax at the time of the gift.

Special rules apply to the Inheritance Tax (IHT) liability of a lifetime transfer. For instance, tax doesn’t apply to most gifts at the time of giving. We call these lifetime transfers ‘Potentially Exempt Transfers’ or ‘PETs’.

If the taxpayer lives for more than seven years after making the gift, these gifts or transfers can become exempt from IHT. If the taxpayer dies within three years of giving, it’s as if they made the gift on death. If death occurs between three and seven years after the gift, a tapered relief is available.

The taxman may charge IHT if the gift giver retains some ‘enjoyment’ of the gift. For instance, an elderly person gifts their home to their children and continues to live there rent-free. The taxman won’t accept this as a true gift. The ‘gift’ would still be subject to inheritance tax, even if the taxpayer dies more than 7 years after the transfer.

Moreover, transfers into most types of discretionary trusts, company-related transfers, and transfers into most types of interest in possession trusts are immediately chargeable.

It’s also important to note that the rules of IHT can be complex and may change over time. Therefore, it’s advisable to seek professional advice when planning for IHT. This can help ensure that you’re making the most of any available exemptions or reliefs, and that your loved ones aren’t left with a larger than necessary tax bill. Remember, careful planning can make a significant difference to the amount of IHT payable.

Source: HM Revenue & Customs Mon, 06 May 2024 00:00:00 +0100

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