How to give a large gift, and allow for possible IHT

[sarah55]

My mum died with nothing left in the estate other than a buy to let of which I was joint tenant, and which reverted to me by survivorship. My sibling did not benefit from any cash via the estate, though their home was also jointly owned with mum and is now theirs.

As their needs are greater than mine, I want to share the value of the buy to let, but at this point in my life, added to the value of the home that I live in, it takes me over the IHT limit. Should I die in the next seven years, I don't want my children to have to pay the IHT on money I give to my sibling.

Consequently I want to give them a proportion less than half of the value to allow for the tax. Does this make sense? It would give my children a proportion of the gift in order to pay the tax.

I have no idea if this makes sense, and I have no knowledge of taxes beyond what I pick up from Martin Lewis, so please be gentle!

What would you do on my position? For clarity, the net proceeds of the buy to let (which has just been sold) is around £180,000

[AGoodman]

First, to test a few assumptions, what is the IHT limit you are using. If you are unmarrried/divorced and have a home, I'd expect it to be £500,000, being the £325,000 NRB plus £175,000 RNRB.

Yes, you can withhold whatever you want in order to cover additional IHT on your estate. You could also consider 7 year term life assurance and just deduct the premium(s).

[sarah55]

Thanks, yes, I'm using the correct IHT limit which includes my home.

A life insurance isn't really an option, as I'm 70 with some health issues, so keeping some of the money back is probably the only possible choice.

[AGoodman]

If your mum died within the last two years, you could also make the gift by way of a deed of variation of her estate.

This would:

- retrospectively sever the joint tenancy so that 50% falls into her estate; and
- gift that 50% to your sibling.

It might cost a little to prepare but a local solicitor should be able to handle it and it would treat the monies has having passed directly from your mother - so no IHT risk.

[sarah55]

If your mum died within the last two years, you could also make the gift by way of a deed of variation of her estate.

This would:

- retrospectively sever the joint tenancy so that 50% falls into her estate; and
- gift that 50% to your sibling.

It might cost a little to prepare but a local solicitor should be able to handle it and it would treat the monies has having passed directly from your mother - so no IHT risk.

It's more than two years, and as I understand it, as the buy to let was never part of the estate

[AGoodman]

You can retrospectively move it back into the estate with a DoV but I'm afraid the 2 year limit is absolute.