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Inheritance Tax. Do you know the 14 year gift rule?

If you make a gift outside of the usual allowable gifts under inheritance tax legislation, you will need to survive seven years for that gift to be free of your estate for inheritance tax purposes. During that seven years the gifts are known as “potentially exempt transfers”. This is a valuable potential get-out for families – although it involves careful planning ahead, and there are risks associated with losing control of assets.

But where trusts have been set up, the rules become more complex.  Trusts are frequently used for what financial advisers term “asset protection’; for instance where grandparents ring fence assets for the future use of young grandchildren, or parents ring fence assets for their children so that their children’s spouses can’t touch them.

If you die within seven years of establishing a trust, the assets in the trust become taxable.  But there’s an additional catch. If you die within seven years, other gifts that were made in the previous seven years before the establishment of the trust also form part of the calculation of inheritance tax.

In this way, gifts made up to 14 years before death can attract inheritance tax.

You would not need to be either especially unlucky or wealthy for your estate to be caught in this way.

It underlines the importance of receiving professional legal advice if you are doing anything other than basic inheritance tax planning.   

If you are thinking of setting up a Trust or already have Trusts, as specialist Trust professionals we can provide the information you need to steer clear of the various traps. Call Janice on 0131 556 4044.