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Morbid Query - Inheritance Tax

Morbid Query - Inheritance Tax

Old Oct 26th 2010, 12:48 pm
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Default Morbid Query - Inheritance Tax

My father is rather matter of fact about death, and he asked me a question...

I'm aware (to the best of my understanding) in the UK that a significant cash gift is subject to inheritance tax if the person giving it passes away in less than 7 years of the gift being made. Presumably to prevent someone just giving away all their possesions on the death bed and claiming they don't owe anything.

My parents gifted me some money to help us with the downpayment on our house.

Heaven forbid, but if something tragic did happen in the next 7-years, would the money I have be subject to tax?

It seems the matter is confused somewhat since I of course live in the US, so I don't immediately see how it could be applied or even gathered.

But I'm not sure.

Hardly a happy subject, but if anyone has any unpleasent experience of this I'd like to hear about it.

I've told my dad at least 3 times I don't know and he keeps asking me to look into it. I guess he figures it may be a better alternative than stuffing the mattress with it
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Old Oct 26th 2010, 1:20 pm
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Default Re: Morbid Query - Inheritance Tax

I think the consequence of his dying before the seven years are up is his estate would then have to pay the Inheritance Tax on the money he'd given you. So it wouldn't affect you in terms of the money you've already received, but of course it could reduce the net value of his estate that will be distributed.
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Old Oct 26th 2010, 1:31 pm
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Default Re: Morbid Query - Inheritance Tax

Originally Posted by hobbes79 View Post
My father is rather matter of fact about death, and he asked me a question...

I'm aware (to the best of my understanding) in the UK that a significant cash gift is subject to inheritance tax if the person giving it passes away in less than 7 years of the gift being made. Presumably to prevent someone just giving away all their possesions on the death bed and claiming they don't owe anything.

My parents gifted me some money to help us with the downpayment on our house.

Heaven forbid, but if something tragic did happen in the next 7-years, would the money I have be subject to tax?

It seems the matter is confused somewhat since I of course live in the US, so I don't immediately see how it could be applied or even gathered.

But I'm not sure.

Hardly a happy subject, but if anyone has any unpleasent experience of this I'd like to hear about it.

I've told my dad at least 3 times I don't know and he keeps asking me to look into it. I guess he figures it may be a better alternative than stuffing the mattress with it
If the amount was over £3K (?) per year your father should have paid gift tax on the money he gave you.
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Old Oct 26th 2010, 1:46 pm
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Default Re: Morbid Query - Inheritance Tax

Not morbid, just practical...it makes sense to get affairs in order to smooth a transition that we are all going to make at some point. I can't believe the number of our friends who don't even have a Will - especially those that have kids!

I think JG was right about the limit on the annual gift tax exemptions, but how its affected by the US/UK aspect I have no idea. I think its one of those things best answered by an expert...and if you find one can you post their details on here please!
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Old Oct 26th 2010, 1:52 pm
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Default Re: Morbid Query - Inheritance Tax

Originally Posted by Yorkieabroad View Post
Not morbid, just practical...it makes sense to get affairs in order to smooth a transition that we are all going to make at some point. I can't believe the number of our friends who don't even have a Will - especially those that have kids!

I think JG was right about the limit on the annual gift tax exemptions, but how its affected by the US/UK aspect I have no idea. I think its one of those things best answered by an expert...and if you find one can you post their details on here please!

AFAIK gift tax is paid by the giver...if the giver lives in the UK taxes are paid to HMRC...where the recipient lives doesn't come into the equation.

http://www.hmrc.gov.uk/inheritanceta...empt-gifts.htm

Last edited by Jerseygirl; Oct 26th 2010 at 2:24 pm. Reason: to insert link
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Old Oct 26th 2010, 2:20 pm
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Default Re: Morbid Query - Inheritance Tax

Originally Posted by Jerseygirl View Post
AFAIK gift tax is paid by the giver...if the giver lives in the UK taxes are paid to HMRC...where the recipient lives doesn't come into the equation.
Yes, it is paid by the donor (or collected out of their estate), and it is a UK tax, but I don't know whether there are any differences for "exporting' the cash...some of the HMRC allowances vary depending on the residency of the individuals concerned.
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Old Oct 26th 2010, 6:51 pm
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Default Re: Morbid Query - Inheritance Tax

Dad can make a £3000 per annum gift with no worries. if he hasn't made one the preceding year, then he can use last year's allowance, too, making £6,000 in total.

The gift to you is classified as a "chargeable lifetime transfer", if it is over the £3K/£6K limits above... Unless you told Dad you will pay any Inheritanced Tax on it, then it will be grossed up and thus that makes the amount bigger.

Is your Dad's total Estate likely to exceed £325,000? if not you have no further worries. If it does, then all chargeable lifetime transfers made in the 7 years preceding death count, and are taxed at half of the current rate ( i.e., 20%)
and the real kicker is that they are assessed at the rates current in the year he gave you the money ( so, £325,000 limit, this year, but only at £300,000 for 2008/09)

On a death occurring, the executors ( or legal personal representatives if there's no will) have to complete a taxes declaration before they can start dealing with the estate. At that point,the chargeable lifetime transfers come into play and any IHT due must be paid FIRST.

(I did a difficult exam on taxes in July of this year, lol)
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