Gift Inter Vivos Insurance Explained
When a gift is made between two people it would be considered part of the donor’s estate if they died within seven years of the gift being made. This would make the amount gifted liable for IHT. The Gift Inter Vivos is a seven year decreasing term assurance policy for which you pay a single
premium at the outset.
The sum assured decreases to mirror the Government’s IHT regulations and offsets the IHT liability on any gifts you have made, paying out a guaranteed, tax-free lump sum if you die during the policy term. The policy cannot be written on a joint life basis. The IHT bands that the policy is structured to pay out at are as follows:
Gift and Death Charge Applied
1-3 100
4 80
5 60
6 40
7 20
Notes (A gift is the transfer of an asset such as property or money etc from one person to another where no payment of any kind is given by the receiving person to the donor. Your estate is the total value of your possessions in whatever form they take.)
Hi, I’m trying to find out more about Gift Inter Vivos policies… I’d appreciate it if you would have a read of my “work in progress” article on contactinsurance.co.uk – Is there a maximum age for Gift Inter Vivos policies?
In the majority of cases, a Gift Inter Vivos plan will not work.
This is because HMRC (Inland Revenue as was) will allocates gifts to the estate for IHT purposes in the order in which they are given – the last gift being whatever is left over on death.
Consequently if you die within seven years, although you may get a discount on the gift, HMRC says this is X% × Nothing = Nothing!
Only if gifts made in the last 7 years are more than the IHT threshold will you get any benefit from the discount and it is geared up to make sure those which would give the most benefit are least likely to be used.
Meanwhile, the rest of the estate is sticking up above the parapet to get taxed at the full 40% until the seven years are up and the gift doesn’t count as part of the estate at all!
So you can either just insure any amount over the threshold or you can take out level cover to meet the IHT on the corresponding part of the residual estate for seven years (or chance it!).