This tax applies to gifts made during an individual’s lifetime or on death. If a gift is made to another individual and the donor survives 7 years from the date of the gift no inheritance tax will be payable. Should an individual not survive for 7 years the value of the gift is added to the value of the individual’s estate on death and inheritance tax becomes payable. The first £325,000 will have no IHT payable the excess will be taxed at 40%.
If the lifetime gift was an asset rather than cash the position becomes more complex because as well as being subject to the inheritance tax regime it also is treated as a disposal for capital gains tax. One of the major problems that arises in planning for inheritance tax mitigation is the family home. It is not possible to give away an asset and still have use of it.
Many people give their family home away to their children but still live in it; this only works in very limited circumstances and in fact normally worsens the overall position. It is strongly advised that inheritance tax planning is carried out at the earliest opportunity as deathbed planning is the norm and is far too late to be able to seriously mitigate the inheritance tax position.