Gifts . Which avoid IHT ?

by **bushey64** on Wed Jan 04, 2012 7:09 pm

hi , can anyone tell me please, if my father buys me a new car, is this counted for IHT purposes? It would be on top of a £3k gift that he has already made this year. He has assets including two houses of about one million.Im aware that he needs to survive another 7 yrs to avoid IHT on gifts and if he doesnt ,there is a taper.

Also , Im about to set up 5 savings accounts/bonds(something that wont be touched for at least 5 years) for all his grandchildren to which he will make an initial lump sum payment and then £20/mnth each after that.
He has a current account with over 50K in , plus various other ISAs etc. His current account appears to increase by about 18K per year due to all the dividends from his stocks and shares and rental income from his other property.He spends very little of this... his only big bill being to the tax man, but his care needs are likely to increase as he is 79, but in relatively good physical health. Im assuming that the savings accounts for his grandchildren wont be counted for IHT purposes as it does not impact on his capital or his living standards and is a regular payment. Am I right?

Can he also give each grandchild a gift of £250 each year which would be on top of the regular £20/mnth and the initial lump sum payment (1k each) or is the initial £1K counted as the tax free gift for that year(and is therefore over the £250 tax free amnt)?

If he pays my sons Uni fees, is this free from IHT or not?
I have power of attorney by the way... dont know if this makes any diference to anything... . Also my mother died ten years ago and left everything direct to my father. Any thoughts on the matters above would be gratefully received.

by **pawncob** on Wed Jan 04, 2012 11:26 pm

All gifts count, not just cash.

Gifts from disposable income may be exempt, but they have to be regular and evidenced as having no impact on lifestyle.

The gift limit is per individual, so any £250 gifts over the £3k limit would not be exempt.

Uni fees are a gift, so chargeable.

by **tax_schmax** on Thu Jan 05, 2012 10:53 am

You cannot make exempt or potentially exempt gifts under a power of attorney. If you plan such actions, you would need to be heard at the Court of Protection. If the Power of Attorney is not yet active, your father should probably consider making gifts. His assets are in excess of his needs. The delicate area of nursing care should be addressed. It would appear that your fathers income may well be close to what nice care might cost. You should consider meeting an adviser who can look at your fathers estate, assess what would be needed to cover any potential nursing care and thereby calculate the excess estate which could be used for the purposes you outline and maybe others under discretionary trusts. In the meantime, gifts out of income are extremely efficient. Gifts out of income would stop in the event of paying for care as the surplus would evaporate. Making plans to resume these regular gifts from trusts or similar would be helpful.

Your fathers income and assets are sufficient for him to be able to afford his own care. Making gifts close to the potential need for care can be interpreted by the local authority as deliberate deprivation of assets that could be used to fund nursing care. As such, I think your father is almost certain to be compelled to pay for his own care and therefore why not prepare to pay for something comfortable.

by **bushey64** on Thu Jan 05, 2012 1:48 pm

thanks both

although I have power of attorney.. this is purely so that I can deal with the bank on his behalf as he finds it difficult to get out. he is still able to write his own cheques and make financial decisions etc. It was just something he thought we should do to avoid problems later on.
Do you mean that in future, if I write myself or my brother a cheque under my Dads instructins, this would not be exempt or potentially exempt... ie he would have to write it himself?

by **tax_schmax** on Thu Jan 05, 2012 2:16 pm

You should be OK unless they are substantial. You can get some more free guidance from the Office of the Public Guardian and the Court of Protection. There are guidelines there. A car might be excessive, but Uni fees might be OK. However, HMRC are in collect mode and will probably be so for the foreseeable future, so you should proceed with caution and keep good evidence of what is being given and why. For example, birthdays, Christmas and the like are good times to give gifts.

The conditions and type of power of attorney are important to give you accurate advice.