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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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Hi, I have a Inheritance question. A single parent(a mother)

Customer Question

Hi,
I have a Inheritance question.
A single parent(a mother) has transferred all her assets to her son six years ago. Her son is looking after her, however officially she has not sufficient independent funds.
a) after the expiry of 7 years since the transfer, would these assets be considered as inheritance tax free or NOT due to the fact that the mother has not left sufficient means for herself?
b) If the son makes a transfer back to his mother part of the gift/funds sufficient enough for her to live till the end of her life reasonably and the balance of the gifted funds remain in the son's possession, how would the gift be considered:
would the 6 past years still count for the balance of the gifted funds or not?
or
the 7 years would start counting for the balance of the gifted funds from the date the son returns the appropriate portion of funds necessary for the mother to live back to her?
Thank you
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
The transfer of assets to her son sets up a Potentially Exempt Transfer (PET) for Inheritance Tax purposes. PETs run off over seven years at a taper. PETs are added back to the deceased's estate on death and are the first to suffer Inheritance Tax (IT). If the estate is unable to meet the IT then it cascades down to the beneficiary for immediate payment. However, if the death occurs in year six/seven only 20% of the value at at transfer is added back and, in any event, if the estate does not exceed 325K, there is no IT liability anyway.
If the son makes a part transfer back exactly the same rules would apply from the date of his transfer and there is a possibility of the beneficiary being asked to meet the IT due as explained above. The balance he retains would still be subject to the original PET set up in his mother's estate on death.
I do hope I have helped solve your little conundrum.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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