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Legal News | 27.10.22

7 is the magic number

If you find yourself in the fortunate position to be able to give cash, property or business assets to your friends or family now, rather than via your Will after your death, then you could make one or more lifetime gifts. Such a gift can be a useful planning tool for reducing your estate’s inheritance tax liability. You do however need to be aware of the number 7.

If you make a lifetime gift to another individual (known as a Potentially Exempt Transfer (“PET”)) then, assuming you survive seven years from the date of making that gift, it should fall out of your estate for inheritance tax purposes, meaning that no inheritance tax will fall due on that gift. This is known as the 7 year rule.

If, instead, you die within seven years of making the lifetime gift, then the extent to which the gift is chargeable to inheritance tax will depend upon a number of factors, including other gifts made in the same period, the availability of inheritance tax allowances and exemptions and when, prior to your death, the gift was made.

Aside from being aware of the 7 year rule, it is worth bearing in mind the grounds upon which a lifetime gift can be challenged. Such a challenge could come from a friend or family member or from an external third party. Potential grounds for challenge include:

  • The person making the lifetime gift (the donor) lacked mental capacity at the date the gift was made;
  • The lifetime gift was made as a result of fraud;
  • The donor was coerced into making the lifetime gift;
  • The lifetime gift was made with the intention to deprive the donor deliberately of their assets i.e. to avoid paying care costs.

If you would like more information on lifetime gifts, please get in touch with your usual contact or email the Private Client Team at wealth@wansbroughs.com


Posted By Our Wills, Tax, Trusts & Probate Team