Private Client
By Emma McCaul
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Inheritance Planning & Gifts- What exactly is the 7 year rule?

Many clients that seek Estate Planning advice ahead of facing a possible Inheritance Tax liability on death. Some clients may have heard or be familiar with the ‘7 Year Rule’, however perhaps most do not know exactly what this means and the rules surrounding it.

To reduce the amount of Inheritance Tax (“IHT”) payable, many clients consider gifting their assets away during their lifetime to family members to reduce the value of their estate. These are called Potentially Exempt Transfers (“PETs”). For IHT purposes these gifts are not to be counted as part of the donor’s Estate on death, however only if they survive the date of the gift by 7 years. If the donor dies within the 7 years from the date of the gift/transfer and the gift(s) are worth more than the IHT Nil Rate Band at the date of their death, a taper relief method will apply to same.

How much tax is due depends on the value of the gift, when it was given and to whom.

Another very important rule in respect of a PET is that the donor can no longer benefit from the gift once they have gifted same. For example, it is common in IHT/Estate Planning that an individual gifts their home so that the value of same falls outside of their Estate, however if they continue to reside there without paying market rent, HMRC would consider this to be a ‘gift with reservation’ and include the value of same as part of the donor’s estate.

There are various way to Estate Plan and IHT Reliefs available. If you are concerned about a possible IHT liability in your Estate contact our experts that deal with Estate Planning solicitors.

We would always advise to revisit this subject with your Solicitor and Tax Advisors regularly.

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