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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Following the bereavement of my uncle, my father and his brother

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Following the bereavement of my uncle, my father and his brother have inherited half of the value of my uncle's property totalling £125,000 - so £62,500 each.

My father would like to give my brother and I £20,000 of this money each and I would just like to get the the bottom of any tax implications.

The way I see it is that my father can make gifts of up to a total of £3,000 in a tax year exempt from any inheritance tax. However, should he give me £20,000 and live for longer than 7 years then there will be no tax payable, correct?

Should he give me £20,000 and pass away within 7 years, then this gift will be added to his estate. If valued at more than the nil rate band of £325,000, then tax will be payable out of his estate on this gift at 40%. If the estate is worth less than £325,000, then no tax is payable.

Is this all correct?


Your understanding is basically correct.

You can use the annual £3,000 exemption and any of the annual exemption not used in the previous year to reduce the potentially exempt transfers from £40,000 to £34,000. Take a look at the example here for confirmation.

You need to remember that the IHT nil-rate threshold is used first against gifts made in the seven years before death with the older gifts being covered first. If the total of gifts exceeds the nil-rate band, then the excess will be subject to IHT but with tapering relief applying as you can read here. Only any part of the nil-rate band remaining after being used against gifts in the seven years before death is available to be used against the assets held at death.

You might also be interested in the notes here and here.

I hope this helps but let me know if you have any further questions.
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