How to make gifts for the care, maintenance, education and training of a close dependant relative without the amount of the gift being included in your estate for Inheritance Tax purposes
Legal advice on how to make gifts by a Kent expert
How to make gifts for the care, maintenance, education and training of a close dependant relative without the amount of the gift being included in your estate for Inheritance Tax purposes
With many of us now safely returned from the challenges and stresses of the family summer holiday and relieved to have our little darlings back at school, our focus should now turn to ensure that all our affairs are in order to protect our loved ones.
With this in mind, we should all be reviewing our affairs to ensure we have Lasting Powers of Attorneys in place to deal with affairs during our lifetimes, wills that are valid and up to date to deal with matters on death, and also to review our individual Inheritance Tax circumstances.
With the amount each individual is able to gift free of Inheritance Tax being frozen for the next few years, many individuals with increasing estate values may consider this to amount to an effective increase in inheritance tax.
From previous articles, many readers may already be aware of the transferable nil rate band between spouses and civil partners, the use of annual and/or small gift exemption, exemptions for gifts on the celebration of the marriage of a close relative and some may even know of the availability to make gifts out of excess income without being subject to inheritance tax.
However, most people will not be aware of the availability to make gifts for the care, maintenance, education and training of a close dependant relative without the amount of the gift being included in their estate for Inheritance Tax purposes.
Why would you want to do this?
You may want to pay for your elderly mother’s care fees, or you may want to ensure that money is safeguarded for your children to go through school, college and/or university. To do this, you can give a lifetime gift of an unspecified amount of money to your children, your parents, or a minor in your care, and provided that this money is purely for their maintenance, etc, this will be ignored by the revenue when calculating the IHT bill on your estate.
How much can I give?
You can only give an amount that is reasonable for the dependant relative’s care or maintenance needs which must be dealt with by way of a lifetime transfer into a trust with the total fund having to be exhausted. For example, if you settled �70,000 in trust for your child’s school fees and they only cost �50,000, the remaining balance will still be chargeable in your estate. You must determine how much of the capital and income which arises from the money settled is needed for the maintenance, education or training.
When is a good time to do this?
If you are elderly and have funds over the nil rate band (currently �325,000 or �650,000 if a transferable nil rate band is available) and wish to provide for school fees of a minor child or child still in full-time education then this may be a good idea for you, as it is a tax-efficient way to immediately remove funds from your estate.
Alternatively, if you have an elderly parent who you would like to make care provision for without the amount of the gift being taxable in your estate, again, this may be the appropriate method to accommodate your plans.
GET IN TOUCH
Garry Warman is a senior legal executive in Whitehead Monckton’s Tax & Estate Planning Department, which he joined in 1997. He specialises in wills, administering estates and trusts as well as dealing with lasting powers of attorney and receivership matters.
He became a Fellow of the Institute of Legal Executives in 1999, is a member of the Society of Trust & Estate Practitioners as well as Solicitors for the Elderly and was made an Associate at Whitehead Monckton in October 2008.
http://www.whitehead-monckton.co.uk/
01622 698000
