7 years – what does it mean to you?

Many clients approach us with the notion that they can give their house or another valuable asset to their children on the basis that after 7 years, it won’t be taken into consideration by the local authority when means tested for long term care.

It is always a bitter blow when we inform them that this is not necessarily the case.  There is in fact no specific cut off point after which assets given away won’t be taken into consideration.  This is something that has already been discussed so I won’t go into the details again but where does this mysterious “7 years” come from.

It is in fact a rule relating to the gifting of assets when calculating the size of a person’s estate for Inheritance Tax (IHT) purposes. 

If an asset has been given away, and no benefit retained by the person making the gift, then after 7 years that asset is no longer taken into consideration by the Inland Revenue when calculating the value of the estate.  Example, you give £10,000.00 to your son to help towards a deposit on his house.  If you died a year later, this £10,000.00 would still need to be declared to the Inland Revenue.  If the gift was made 8 years ago then it can be disregarded.

However, if a gift of an asset is made, most commonly the family home, and the person making the gift retains a benefit from the asset gifted ie, remains living at the property, then the value of the asset in question will more than likely need to be declared to the revenue regardless of how long ago the gift was made.

If your estate is worth more than the tax free allowance (currently £325,000.00 each) then you may wish to consider making some lifetime gifts in order to reduce your estates liability to IHT.  An individual can currently make gifts of up to £3,000.00 per annum from capital which, once paid, is ignored for IHT purposes.  Gifts which exceed the £3,000.00 allowance need to be outlived and this is when the 7 year rule kicks in.

For further information or an initial consultation please call Kirsten Bradley, a Wills, Probate, Tax and Trusts Solicitor at Forbes Solicitors on freephone 0800 975 2463 or contact our Solicitors online today.

This entry was posted in Wills, Tax, Trusts and Probate.