The payment of inheritance tax (IHT) on property, money, and savings can be costly for grandparents leaving wealth to loved ones.
Since its commencement in 2008, the tax nil rate bracket has remained unchanged at $392,924, drawing more and more individuals into the IHT net.
What Is Inheritance Tax?
Parents and grandparents are reminded of the various ways they can save thousands of dollars in order to prevent loss and lessen the likelihood of a costly charge.
According to LV’s wealth and well-being monitor, approximately 35% of retirees have donated money to family or friends since the start of the year.
Gifting is an excellent strategy to reduce one’s IHT payment, but there are limitations that can result in individuals paying more.
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What Is 7-Year Rule?
The seven-year rule applies to any gifts exceeding a person’s annual gifting limit. This is typically $3,630, however, excess funds can be rolled over once for a total of $7,250.
These transfers are classified as possibly exempt transfers for IHT purposes. If a person survives at least seven years after a potentially exempt transfer (PET), the transfer is excluded from inheritance tax (IHT).
This means that the beneficiary will not be required to pay any inheritance tax on the assets. However, a PET may be subject to inheritance tax if the donor passes away within seven years. If an individual passes away between three and seven years after making a gift, the inheritance tax owed is reduced on a sliding scale.
For instance, the tax burden decreases from 40% to 32% if someone survives three years after making a donation, and from 32% to 24% if they survive four years after making a gift.
If the person dies between five and six years after the donation, the estate is taxed at 16 percent, and if they die between six and seven years after the gift, the estate is taxed at 8 percent.
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