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bigduckontax
bigduckontax, Accountant
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I have rounded figures . I need to check my

Resolved Question:

I have rounded figures for simplicity. I need to check my thinking
My parents are purchasing a property for 360,000 in cash.
They wish to put me on the deeds of the house and allocate a value of 1/3 (120000) to me.
I believe that providing my parents live beyond 7 years of the date of the transfer there is no tax to pay here.
In the event of one of them dying, their share (120000) will be left to the other partner with no tax to pay meaning that the surviving parent will have 240000.
In the event of that parent passing away they will leave the 240000 to me which is under the IHT limit and therefore will not attract a tax payment.
So in the above example I can be put on the deeds and allocated a share of the value without attracting a tax liability.
In the event that the house goes up in value and the 240000 that I inherit at the end has increased to in excess of the current threshold I understand that I would liable for 40% tax on that.
However if for example my father left the 120000 above and nothing else am I right in thinking that the remainder of his allowance (325000 at present - 120000 = 205000) would be transferrable to my mother meaning that when she passed away the allowance to me would be 530000 (325000 + 205000)?
Complicated I know but hope that makes sense.
Submitted: 11 months ago.
Category: Tax
Expert:  bigduckontax replied 11 months ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. You are correct in your surmise regarding the 7 year rule for gifts. The gift will create a Potentially Exempt Transfer (PET) in their Inheritance Tax (IHT) affairs. PETs run off at a taper over the period and in the event of a demise will be added back to their estate for IHT purposes. PETs are the first to suffer IHT and If the estate is insufficient to meet the tax on the PET the liability cascades down to the beneficiary for immediate payment. The classic defence against IHT on the PET is a reducing term life insurance policy. IHT does not kick in until 325K and is at 40% flat rate above this. Any inter spousal and charitable bequests inflate the limit. Yes you can be put on the deeds as you suggest, subject to the PET. Unless caught by the cascading IHT on the PET you incur no liability. You are correct in your thinking that a surviving person from a married couple can inherit the unused portion of their deceased spouses's 325K making a theoretical 650K available. I do hope that I have covered everything and been able to put your mind at rest.
Customer: replied 11 months ago.
Hi Keith, thank you for your response.So to reaffirm my slightly addled brain1. If my parents live beyond the 7 years there is no tax to pay on the 1200002. If they do not then if the full amount of 120000 is below the current iHT limit (I would not inherit anything else if one parent died as they would leave all to the other) there is no tax to pay regardless of the 7 year limit3. When the other parent passes away I would inherit the 240000 - if this happened inside 7 years I would be liable for tax on the 360000 (if any of it above the IHT limit). If outside 7 years and IHT limit higher than 360000 then no tax liability at allIs that right - sorry if not clear
Expert:  bigduckontax replied 11 months ago.
1. Correct. 2. Correct, the PET would not raise the estate above the 325K so there would be no IHT due. 3. If the other parent dies within the seven year period then the PET is added back to their estate. Remember the PET runs off at a taper over the seven years so this may still not breach the 325K plus whatever tax free allowance has been inherited from the first partner to pass on. Also you incur no liability under the PET if the estate can meet the IHT in any event. Please be so kind as to rate me before you leave the just Answer site.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3381
Experience: FCCA FCMA CGMA ACIS
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Customer: replied 11 months ago.
Fantastic. I feel much clearer now on the whole issue and believe I have all of the information I need to proceed you have been a great help
Expert:  bigduckontax replied 11 months ago.
Thank you for your support.

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