Giving a large gift and IHT

[unboxpro]

Hi,

I need to give a large gift of approximately 500k to a friend, as promised a long time ago. I am aware that IHT will probably have to be paid on this if I die within 7 years.

What I am unsure of is what amount is liable to IHT (my nil band rate is 325k, but with the April 2017 announcement that there is an additional 100k , I do plan on giving my home to my children, so my nil band rate is 425k).

So does that mean that the only taxable amount is 40% of the difference between that amount I give and the nil band rate?
Amount to give - £500,000
Nil band rate - £425,000
difference - £75,000
40% of £75,000 = £30,000

Is the above correct? or it is 40% of the whole £500,000 (£200,000)?

[AnthonyR]

Not quite.

Your nil rate band is £325,000. If you die leaving your property to your children you get an extra £100k (rising to £175k over the next few years), but that only applies on death, not to lifetime gifts.

As such:

Gift - £500,000
NRB - £325,000
Annual Allowance (£3k x2) - £6,000
Gift in excess of allowances: £169,000

Tax on the gift in the event of death within 7 years is £169,000 x 40% = £67,600

However, if you survive more than 3 years the tax is tapered by 20% per year.

Note that the IHT is primarily payable by the recipient of the gift. If you/your estate agrees to pay the tax, the tax is treated as a further gift and taxable as well!

[unboxpro]

Hi Anthony,
Thanks for your reply.

So just for clarification...
In the first instance, my friend would be liable for IHT if i die within 7 years?
Does my friends NRB come into play at all if I die within 7 years? or is it just my NRB?

[Lee Young]

Yes, and just your NRB