Ask Money: Estate planning or tax evasion?

Patrick Connolly of Chase de Vere helps a reader with a question about transferring assets.

My wife and I jointly own assets well over the inheritance threshold and wish to gift some of these to our children. Could we transfer these assets into my wife's name, she being younger and in better health than me, and more likely to survive for seven years – or would HMRC view this as tax avoidance or evasion?

Raymond Dent, by email.

Patrick Connolly of Chase de Vere replies: Inheritance tax potentially applies to transfers of assets you make during your lifetime that reduce the value of your estate, and to your whole estate on your death. Transfers such as gifts to family members made during your lifetime are either exempt, potentially exempt or chargeable.  

Transfers between spouses, either during your lifetime or on death, are exempt from inheritance tax. So anything that you transfer to your wife should be exempt, unless she is not UK domiciled, when other rules can apply. 

There are also exempt gifts that you can make to your children, including an annual exemption amount of £3,000, and exempt gifts out of your normal expenditure, if these are regular gifts made from your excess income and making them doesn't affect your standard of living.

If you want to make gifts which are in excess of the exempt limits, such as gifting larger amounts to your children, these are likely to be potentially exempt transfers.

In this situation, if you die within seven years of making the gift then it becomes chargeable to your estate. This is to avoid people making large gifts on their 'deathbed' to avoid their estate paying inheritance tax.

However, if you live for seven years, those assets should then be outside of your estate for inheritance tax purposes, as long as you are no longer benefiting from them.

There should be no problem with gifting to your wife. You can make an exempt transfer to your wife and she can then make the gift to your children.

If you need help with a tax, pension or financial planning problem, please email: moneyobserver.ed@moneyobserver.com.

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