Money gifts & IHT

[melvinsummers]

Hi I hope someone can help clear this up for us:-
My 87 year old mother and her 5 children are a little confused by the available advice online regarding making gifts of money & Inheritance Tax etc.
The value of her estate currently stands at £128,000 in property; £95,000 in cash/savings and around £1000 in shares making a grand total of £224,000 which is obviously less than the £325,000 IHT threshold.
She wishes to make a gift of £5,000 to each of her 5 children now ie £25,000 in total BUT she understands that her 'Annual Allowance' is only £3,000 total? [or £6000 if she's able to carry the allowance forward one year]
Question 1) - As she is some £100,000 short of the IHT threshold [& this is very unlikely to change in the foreseeable future] will she be OK to make the £25,000 gift to her children without us worrying about the IHT situation or does the £3000 annual allowance still apply to her situation?
Question 2) - if OK from IHT point of view, will each of the children then need to declare the £5000 gift to HMRC?

Thanks

[Lambs]

M,

For UK IHT purposes, the annual gift amounts you refer to are really only relevant when someone's chargeable estate exceeds the Nil Rate Band.

You basically have to look back up to 7 years prior to the date of death to see if there were any previous capital gifts. If there were, then they should normally be added to the chargeable estate (and increase the IHT ultimately payable on death) - except where they fall below the limits you have referred to.

Assuming your mother has not made any substantial gifts in her recent lifetime (i.e., the 7-year "look back" referred to above) then there is no issue, as she is comfortably below the NRB limit.

For clarity, gifts between living individuals are almost always ignored for IHT purposes - they are "potentially exempt" and will remain so provided the donor survives the gift by 7 years. So there is nothing to worry about now. If you mother had a much larger estate, and made substantial lifetime gifts then there could be IHT risks were she not to survive making the gift by 7 years. But this does not seem to be a concern here - and, again, it would be only death within 7 years of a lifetime gift from one individual to another that would bring such a gift back into consideration for IHT purposes.

Regards,

Lambs