The gift that was not a gift – Inheritance tax

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Pam said: ‘Did you know Dorothy died a few months ago, lived in the big house across the street, a dragon woman, short and sharp but very organized and always had a plan to beat the taxman’. “Yeah I had heard she passed, sad to see her really go, she still knew the juiciest gossip, but time is running out on us all at the end,” Marjory said. “Well, that’s very true indeed,” Pam said, “And here’s a bit of gossip for you, it turns out his biggest scheme to beat the taxman was a complete flop.” “How?” said Mary, suddenly interested in ways to beat the taxman after her recent encounters with her lawyer. “Well, it turns out that when Dorothy’s husband, Bryan, died 10 years ago, Dorothy thought it would be a good idea to reduce the size of her estate to avoid a large income tax bill. estates upon her death Since her greatest asset was her home, she transferred ownership to her daughter Rebecca, thinking that if she survived 7 years, the gift would fall outside her estate and not be included in any tax calculation.” “Oooo yeah, I heard about the 7 year rule, that seems fair to me, what happened?” said Mary excitedly, taking a slice of the carrot cake perched at side of her.” Apparently the lawyers advised Rebecca that because Dorothy was still living in the property without paying rent, the gift to Rebecca was void for estate tax purposes and was included in the value of the property. Dorothy’s estate, which meant there was a large inheritance tax bill. we have to pay”. “So the plan didn’t work out at all then?” Mary scrambled, while finishing the last crumbs of cake. “Not at all, and the worst part is that this pretty house had to be sold to pay the inheritance tax.” said Pam.

“That’s such sad news, do you know if she ever took any advice on the gift from Rebecca.” said Mary. “I don’t think, I think Dorothy thought she was too smart for all that,” Pam said. “Well, that just goes to show that it’s worth taking advice when playing with your family’s legacy.”

COMMENT

As discussed last week, giving gifts, especially large gifts like donating property, can have significant consequences. If your goal is to mitigate or reduce your inheritance tax, you should always seek advice from a qualified legal professional who can walk you through the maze of complex tax legislation and help you avoid committing the same errors than Dorothy.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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