The gift that wasn’t a gift
As the discussions regarding the current book they are reading dwindle, the conversation turns to a perennial topic, “how to avoid inheritance tax?”
Pam said, “Did you know that Dorothy died a few months ago, lived at the big house down the way, a dragon of a woman, short and sharp but very organised and always had a plan to beat the tax man”.
“Yes, I had heard that she’d passed, sad to see her go really, she always knew the juiciest bits of gossip, but time gets to us all in the end” said Mary.
“Well that’s very true indeed” said Pam, “And here’s a bit of gossip for you, it turns out that her biggest scheme to beat the tax man was a complete flop”.
“How so?” said Mary, suddenly interested in ways to beat the tax man after her recent meetings with her solicitor.
“Well, it turns out that when Dorothy’s husband Bryan died 10 years ago, Dorothy thought that it would be a good idea to reduce the size of her estate to avoid a substantial inheritance tax bill when she passed. Given that her largest asset was her home, she transferred the ownership of it to her daughter Rebecca, thinking that if she survived 7 years then the gift would fall outside of her estate and wouldn’t be included in any calculations by the tax man”.
“Oooo yes, I’ve heard of the 7-year rule, that sounds about right to me, what happened?” said Mary excitedly, taking a slice of the carrot cake perched next to her.
“Apparently, the solicitors informed Rebecca that because Dorothy remained living in the property without paying any rent, the gift to Rebecca was void for inheritance tax purposes and was included in the value of Dorothy’s estate, which meant there was a large inheritance tax bill to pay”.
“So, the plan didn’t work at all then?” Mary garbled, whilst finishing the last crumbs of cake.
“Not at all, and the worst part is that that lovely house had to be sold to pay the inheritance tax bill.” said Pam.
“That’s such sad news, do you know if she ever took advice on the gift to Rebecca.” said Mary.
“I don’t think so, I think Dorothy thought she was too clever for all of that,” said Pam.
“Well it just goes to show, it worth taking advice when you’re playing with your families inheritance,”.
As discussed last week, making gifts, particularly substantial ones like a gift of property, can have significant consequences. If your aim is to mitigate or reduce your inheritance tax liability then you should always take advice from a qualified legal professional who can explain the maze of complex tax legislation and help you to avoid making the same mistakes as Dorothy.