Daniels 50k

Question 1

Explain the IHT position if they gift the 50k to Daniel (6)

Answer 1

• the gift is a PET
• £12k immediately exempt from IHT
• as they can use current and previous years annual gift exemptions
• after 7 years it will be fully outside N and J’s estates
• if they die with in 7 years then the non exempt part (19k)
• will reduce the NRB that the survivor can inherit

Question 2

Financial planning issues if the lend the money to Daniel (8)

Answer 2

• loss of access to the capital
• loss of potential growth on the funds
• debt remains part of their estate
• need to decide term for the loan
• and rate of interest Daniel will pay
• and if they want security for the loan
• if joint loan then both pay tax on interest
• and Jane is a higher rate tax payer
• Daniel may not be able to repay the loan

Question 3

Why 50k should come from deposit

Answer 3

• will still be enough cash for EF
• current interest rate is very low/ lower than inflation
• potential loss of growth if they take the money from other funds
• having a greater impact on their ability to retire when Jane reaches 60
• no penalties to withdraw the money from bank
• and no tax charges
• could be CGT liable if they encash Nick’s UT
• withdrawals from bond may cause a chargeable event
• funds taken from isa are tax free
• but can not be replaced