There are many misconceptions as to when the 7 year rule applies to estates and in particular the gifting and or transferring of property.
The 7 year rule is a tax rule which applies to gifts of assets. If you die within 7 years of giving a gift and there’s Inheritance Tax to pay on it, the amount of tax due after your death depends on when you gave it.
In order for the 7 year rule to apply it must be a gift that when you give it you no longer have anything to do with it. For example if you gift £50,000 to your son or daughter this is out of your estate once the 7 years elapse however if you gift a property to your son or daughter and you still live in the property or use it from time to time, this is classed as a gift with a reservation of benefit and therefore the 7 year rule does not apply as it has never left your estate.
When you gift an asset the value of that asset depletes your nil rate band allowance, which is currently £325,000, until the 7 years have passed at which point you will have your full nil rate band again. If you do not survive the full 7 years after the gift was made then there may be inheritance tax to pay on the gift and this is payable by the receiver of the gift.
There is a lot of confusion when it comes to the family home in that many people believe that if they gift/transfer their home to their family and live for 7 years then their home is protected against nursing care costs, this is not the case and there is no time limit on the transfer of property if that transfer is seen as a deprivation of an asset in order to avoid paying nursing care costs.
If you would like further advice regarding your assets please contact Judy Rose to discuss this further. judy.rose@oreillystewart.com