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Where Taxpayers and Advisers Meet

14 Year Rule

LesCG
Posts:3
Joined:Wed Mar 13, 2019 4:52 pm
14 Year Rule

Postby LesCG » Wed Apr 17, 2019 4:41 pm

A young widow was left well provided for by her late husband who died 8 years ago. She has two boys and one girl. Out of her inheritance she purchased, in her sole name, a house for each of her boys for their respective occupation. She now wishes to gift to each son the house of his residence.
The houses are currently valued at £300,000 and £280,000. Both are mortgage free. The widow also wishes to make a cash gift of £130,000 to her daughter.

The widow's estate after the gifts will be worth around £850,000 including her house (worth around £600,000). Accordingly, with her NRB and RNRB and the unused NRB and RNRB from her husband I believe she will avoid IHT.

I believe that the 14 year rule will apply and if she dies within 14 years and more than 7 years, both the gift of the second house and the cash gift will be taken into the calculation of IHT. Adding the total value of the second and third gifts (£410,000) to her estate would make a total chargeable to IHT of £1,260.000. The available reliefs (including the RNRB from the year 2020) would be £1,000,000 with IHT paybale on £260,000, with taper relief.

My questions are:

1, Am I correct in my analysis?
2.Is there some way to avoid the 14 year rule?
3.Possible daft question, if the widow transferred the two houses and the cash to one son at the same time would that count as I transfer? if so could there then be staged transfers with that son making an onward transfer of house 2 and the cash to his next sibling as a PET who could then similarly transfer the cash to his sister.

AdamS93
Posts:268
Joined:Tue Sep 26, 2017 6:28 pm

Re: 14 Year Rule

Postby AdamS93 » Thu Apr 18, 2019 7:38 am

If these are just PETs all you need to worry about is the 7 year rule. If they are going in to a trust, then things change quite dramatically.

By the sounds of it, there is going to be significant CGT due on the transfer of the two properties to the two sons.

There are also legal considerations which vary greatly depending on the age of the children.

In all honesty, this would've been better (and far more tax efficient) to sort out on the death of the first spouse.

With the amount at stake, the best advice I can give is to seek paid for, professional advice.

LesCG
Posts:3
Joined:Wed Mar 13, 2019 4:52 pm

Re: 14 Year Rule

Postby LesCG » Thu Apr 18, 2019 10:57 am

Many thanks for clarifying a subject of which I have very limited knowledge. I now understand that the 14 year rule only applies to assets placed in trust not PETs. I can see that it would have been better dealt with on the death of the husband but I did not have any input at that time.

I am grateful for your assistsance.


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