Q. As I am now in my 80’s and being a widower I am finding my ability to spend money is falling and so my estate is accumulating. As a result for several years now I have been gifting £1,500 each year to my 2 children which I understand I am allowed to do without being liable for Inheritance Tax. Last year though I gave them in total £16,000. Are there any tax consequences as a result and do I need to report this? I have not made any other gifts.
A. You are allowed to gift up to £3,000 per annum as you have done in the past to your children which is free immediately from the threat of Inheritance Tax (IHT). This is classed as your annual gift exemption. The excess £13,000 that you gave them last year would be counted as a potentially exempt transfer for IHT purposes. It does not need reporting for tax purposes now and if you survive for 7 years from the date of the gift it falls outside your estate entirely for IHT purposes. If however you die within 7 years your executors would need to notionally add £13,000 to the value of your estate and if this is in excess of the IHT nil rate band (currently £325,000) IHT would be chargeable at 40% above this figure. However if your late wife did not use her IHT nil rate band following her death, this or whatever percentage was not used can be carried forward and used in the year of your death so potentially up to £650,000 of your estate may not be subject to IHT on your death based upon the current IHT nil rate band allowances.
Q. I have been offered a job including a number of benefits, including Group Permanent Health Insurance. Could you explain what this means?
A. Permanent Health Insurance (PHI) is a type of insurance which means that if you are unable to work due to ill-health or disability, the insurance pays out to provide an income. It is available either to individuals, where you would pay your own premiums and the benefit would be paid directly to you, tax-free from the insurance company in the event of claim, or to employers. The Group version pays out the claim value to the employer, enabling them to continue to pay you a proportion of your salary, which would be subject to tax and NI. Both types of scheme will not cover your full earnings, as the insurer will want you to have an incentive to return to work. The benefit will commence once you have been off work for an initial period, usually 4, 13, 26 or 52 weeks, and usually continues until you are fit to return to work, or until a set retirement date. Some schemes, however, have a fixed payment term of between 2 and 5 years. It is a valuable benefit, but I recommend that you get full details, and ensure that the cover does not duplicate any personal Income Protection cover you may have in place already, as you are unlikely to be able to claim under both policies at once. One of the advantages of the Group version of the scheme is that underwriting is less onerous than it is for individuals.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
