Inheritance: is it too late to give gifts to my grandchildren?

Q: I have Stage 4 cancer and it is probably too late to give my grandchildren a gift of money and gain some IHT relief under the seven-year sliding scale for partial tax relief. 

Therefore as the full 40% tax is going to be levied on the gift is the same as the 40% after my death, is there any downside to me gifting the money before I die?  My allowances will all be used up elsewhere.
 
A: I am very sorry to hear about your illness, and I hope you are receiving treatment to improve your quality of life and extend it as much as possible.

As you have correctly stated, for gifts to be completely excluded from your estate for inheritance tax (IHT) purposes, you must survive for a further seven years. However, taper relief starts to apply after three years, reducing the IHT due. While I do not know the specifics of your condition, some Stage 4 cancers can be treated to extend life beyond this period, so making these gifts now could potentially be beneficial for tax purposes.

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Your question, however, asks whether there is any disadvantage to gifting if you pass away before taper relief applies. There is no additional tax penalty for making these gifts now, so no financial disadvantage However, it would be wise to inform your grandchildren that they may face a 40% tax charge on these gifts. If you choose not to make the gifts, the IHT will instead be paid out of your estate, with the remaining assets distributed to your beneficiaries.

Some may argue that it is administratively easier for executors and beneficiaries to handle IHT payments through the estate. However, this needs to be weighed against the pleasure of seeing your grandchildren benefit from your generosity and being able to use the money now.

One final consideration is ensuring you retain sufficient funds to maintain a comfortable standard of living for yourself, especially if treatment extends your life for several years.

More on inheritance planning:

• Read: IHT on pensions to push wealthy families into 80% plus tax
• Read: Q&A: the new ‘double tax’ on inherited pensions

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of  Fidelity’s advisers or an authorised financial adviser of your choice.