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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4197
Experience:  FCCA FCMA CGMA ACIS
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This is an inheritance tax question. In 2001 following the

Customer Question

This is an inheritance tax question. In 2001 following the death of my father in law my mother in law made a gift to each of her daughters (one being my wife) of one third of her house. She has retained the remaining one third of the house as part of her estate. She has continued living in the house and pays the bills and upkeep of the property and we have not charged her rent at any time. She became disabled in 2007 following a hip operation that went wrong and my wife and I have managed her care since then. My mother law has recently been diagnosed with dementia and my wife has LPA of her financial affairs. The question is, will my wife and her sister be subject to "gift with reservation of benefit (GWRs)" when my mother in law passes away. There is a will that reflects the change of ownership.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer and pleased to be able to help you with your question. Here is a general synopsis regarding major gifts. Gifts of this nature create a Potentially Exempt Transfer (PET) in the donor's estate for Inheritance Tax (IHT) purposes. PETRs run off at a taper over seven years and in the event of a decease within this period the PET is added back to the donor's estate. PETs are the first to suffer IHT and if this estate is insufficient to meet the IHT on the PET then the liability cascades down to the beneficiary for immediate payment. IHT kicks in at 325K and is at 40% flat rate on the surplus. The 325K can be inflated by any charitable or inter spousal bequests and furthermore any surplus 325K fro a pre deceasing spouse can be added making an exemption of 650K a possibility. However, there is a snag with your Mother-in -Law. By remaining in the property she gave away this is a 'gift with reservation.' Where there is such a gift the 7 year PET clock does not start to run until she vacates. What is in the will is irrelevant, so it all depends upon the size of the estate on decease. Over 325K may involve an IHT liability. I am so sorry to have to rain on your parade.
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.