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bigduckontax
bigduckontax, Accountant
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I am being gifted £70,000 to form part of a deposit for a

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I am being gifted £70,000 to form part of a deposit for a house purchase. The money is coming from outside the UK as my step mother is a non dom.
From my perspective as it is a gift and will not be used to make interest the only tax payable will be if the provider of the funds dies within 7 years of the gift being paid.
Is this correct ? I would appreciate any input on this as we are pretty sure this is the case but don't want any nasty surprises.
Submitted: 10 months ago.
Category: Tax
Expert:  bigduckontax replied 10 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 opinion as to taxation. A gift of this magnitude will create a Potentially Exempt Transfer (PET) in the Inheritance Tax (IHT) affairs of the donor. PETs run off at a taper over seven years and in the event of the donor's decease within that period are added back to their estate for IHT purposes. PETs are the first to suffer IHT and if the estate is inadequate to pay the tax on the gift then the liability cascades down to the beneficiary for immediate settlement. IHT does not, of course, kick in until 325K. The classic defence against IHT on a PET is a reducing term life insurance policy.

I do hope that I have been able to set your mind at rest on this matter.

Customer: replied 10 months ago.
HI Keith thanks for the response. So can you confirm that in this circumstance the gift at £70,000 there is no tax to pay even if the donor dies within 7 years ?
Is it if they gift more then 325k or if their estate is worth more than 325k at the time of death that IHT kicks in ?
Expert:  bigduckontax replied 10 months ago.

Not quite; there might be a liability if the donor's UK estate is over 325K on death and subject to IHT and insufficient to meet the IHT on the PET. Only then you would become liable for this taxation.

IHT is levied at a flat rate of 45% on estates over 325K.

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Customer: replied 10 months ago.
Ok thanks. So if they outlive the 7 year rule from time of gift then the gift is PET at there time of death.
ie. No tax to be paid on it as it was gifted more then 7 years prior to their death.
Expert:  bigduckontax replied 10 months ago.

If the donor outlives the 7 year rule the PET dies.

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Expert:  bigduckontax replied 10 months ago.

Thank you for your support.

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