Many parts of the world remain under some degree of lockdown due to the COVID-19 pandemic. For older adults who may have limited access to assistance or company outside of immediate family during the pandemic, and/or whose transition to long-term care may have been delayed as a result, temporary relocation to live with supportive family members may be a suitable option.
As our readers know, inheritance tax is payable in respect of the assets of estates located in a number of jurisdictions, which do not include Canada. In the United Kingdom, for example, an inheritance tax of 40% is charged on the portion of an estate exceeding a tax-free threshold of 325 thousand pounds (subject to certain exceptions).
One way that some families choose to limit inheritance tax is to gift certain assets, in some cases a family house, prior to death, such that its value will not trigger the payment of inheritance tax. In the UK, if an asset is validly gifted at least seven years before death, inheritance tax will not be payable on the asset. However, where the donor of the gift reserves the benefit of the property – for example, if he or she continues to live at real property gifted to another family member – the gift will not be valid for the purposes of inheritance tax calculations.
A recent news article highlights the risk that older individuals in the UK who move back into previously gifted property during the pandemic may lose the benefit of potential inheritance tax exclusions by falling under the “gift with reservation of benefit” exception as a result of benefitting from continued occupation of the gifted property. While this risk may not outweigh the benefits of obtaining family support, it is a factor that a family may wish to consider as part of a decision to alter living arrangements.
Approximately 600 gifts have failed in the past several years, triggering up to 300 million pounds in inheritance tax in the UK. It is certainly possible that these figures will continue to increase as a result of shared family accommodations during the pandemic.
Thank you for reading and stay safe,
Nick Esterbauer
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