FAQs - Inheritance Tax

1. How can my mother give my sister and me cash?

2. Is it true my sons will have to pay the tax on our bungalow when we die before they can sell it?

3. We bought a second property a few years ago as an investment property and have let it out since. Would we have to pay if we give the property to our son as a lifetime gift as a PET?

4. Will a Deed of family arrangement work between an aunt and her nephews/nieces?

1. A Deed of Family Arrangement could be used to transfer assets up to the inheritance tax limit to you and your sister free of IHT. There is a 2 year time limit.

2. If the estate of any one exceeds the exempt amount then tax is due at 40% on the balance.

Normally, if the property is transferred to them without reservation of benefit to you ( ie you then pay a rent to them for continued residence) and you outlive this transfer by 7 years, no IHT is payable. But if you were both to die before the 7 years is up, the property would be treated as having been passed over on your later death at the then market value. If your sons decided to sell the property immediately, full IHT @ 40% of the excess value over the exempt amount would be payable. If however they hung on to the property, they can pay the IHT by annual instlaments over a 10 year period with interest @ 3% being charged on the outstanding balance still outstanding

If the value of the whole Estate including monies, savings and property is under the exempt amount, then no IHT is payable.

3. As a straight gift to your son the transfer will be a PET as you describe. However, CGT may be due based on the excess of market value over cost (but take into account indexation and taper relief if appropriate). You may consider a transfer into trust in order to hold over the capital gain. All in all it is not possible to give a definitive reply as further info is needed and there are many possible alternatives depending on your own and your son's tax position.

4. A deed of variation is not limited to family members but, effectively, requires the agreement of the persons who benefited under the terms of the Will and would benefit under the terms of the variation. Provided the time limit for the Deed, 2 years from the date of death, and the Notice to the Board of the Inland Revenue, 6 months from the date of the Deed, are complied with this will work. - See Section 142 IHTA 1984.