The sad case of Kirsty Makin, reported in The Times this week, highlights the complexity of the inheritance tax rules on lifetime gifts. Before they were married, in 2017 Tom Makin gifted Kirsty a share in the £1.8m family home. They married in 2018 and Tom passed away in June 2019. The IHT bill is apparently £300,000. Had Kirsty inherited the property under Tom’s will it would have been IHT-free in view of the spouse exemption.
The point is that marriage or civil partnership does not purify a gift made in advance so it will often be a potentially exempt transfer (a PET) on the transferor’s IHT “clock” for the normal seven years unless it is covered by an exemption other than that applicable to transfers between spouses. Most people are aware that there are exemptions in consideration of marriage but less well-known is that the exemption for parties to the marriage is only £2,500. The position is more complicated if the giver reserves a benefit as then the seven-year clock will not start to run.
Turning to the fictional world of ITV’s Finding Alice, the eponymous heroine’s partner Harry gifted the newly built family home to his parents shortly before falling victim to the lack of a stair bannister. As recipients of a failed PET, they were primarily liable for the IHT occasioned by his untimely death.
The moral of the story is stop and think before making any substantial gifts. And remember that gifts are disposals for capital gains tax purposes.
Returning to the title – a reference to the caution with which a Trojan priest greeted the Greeks’ gift of a certain wooden horse – bear in mind that UK assets are always within the scope of IHT, even if the owners are non-UK domiciled.
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This article was also republished in the May 2021 issue of ICAEW TaxLine and is available here on the ICAEW website.
