A recent survey of 1400 adults by the insurers Aviva, has revealed widespread misunderstanding of the IHT exemption rules. I thought you may be interested in some of these common myths – because you may well hold one of them yourself!
What are the common myths underlying Inheritance Tax?
Myth 1: A cash loan to family members counts as a gift and will thus reduce the value of your estate for IHT purposes.
Truth: No it will not. A loan is a loan and not a gift. For a gift to be effective is should be an outright gift, with no strings attached. If so it becomes a potentially exempt transfer PET (and there will be no IHT to pay if you survive 7 years from the date of the gift).
Myth 2: You can give away an asset for IHT purposes but still enjoy the use of it.
Truth: No you can’t. This is a gift with reservation and thus not a gift for IHT purposes. You need to make sure that a gift is irrevocable and there is no reservation of benefit attached.
Myth 3: Parents can reduce the size of their estate by investing jointly and buying a property with their children.
Truth: You need to make clear that a stake in a property is a gift not an investment or else it will be treated as part of your estate for IHT purposes. If you give your children the money as a gift and then they invest it in the property you should be clear.
Myth 4: The most you can give away IHT a year is £3000 plus wedding gifts and small amounts of £250.
Truth: You can make regular gifts out of income on top of £3000 as long as the gifts are regular, out of surplus income and do not reduce your standard of living.
Myth 5: Taper relief of PETs is a percentage reduction in the amount of the gift.
Truth: It is not. It is a discount on the amount of tax due not the size of the gift.
Do you have a question about a loved one who is under the impression that one or more of the myths above are true? Comment below and I’d be happy to give you some feedback.
If you have any more detailed questions as to how to approach IHT in the way that most suits your situation and family, please give me or my team a call on 01788 577 613 (Rugby) | 01908 564 701 (Stony Stratford), tweet us or email us on firstname.lastname@example.org with a subject title “Question about IHT”.