Gift Inter Vivos
‘GIFT BETWEEN THE LIVING’
A Gift Inter Vivos plan from Scottish Widows Protect allows your client to set up individual policies which collectively aim to provide a lump sum to cover the potential inheritance tax (IHT) liability that could arise from making a gift.
Key features
- Scottish Widows Protect menu plan allows clients to set up a number of policies under the one plan.
- Create a plan that allows your clients to provide cover for a potential IHT liability that reduces over 7 years.
- Scottish Widows Care, with RedArc, gives long-term practical advice and emotional support to policyholders and their families from day one.
GIFT INTER VIVOS POLICIES
In its simplest terms, a Gift Inter Vivos plan allows your clients to protect their beneficiaries from any potential inheritance tax (IHT) liability on a gift they have given, by providing cover for the potential tax over the 7 year period, once the gift is made.
If your client makes a gift to another person while they are alive – ‘gift between the living’ – and, assuming there is no exemption, this gift could potentially be subject to IHT for the next 7 years.
You can find out more information about IHT planning and exemptions in our Estate Planning guide (PDF, 489KB).
A Gift Inter Vivos life assurance plan allows you to set up individual policies which collectively aim to provide a lump sum to cover the potential IHT liability that could arise for the person who has received the gift, if the donor of a gift dies within seven years of making the gift.
It is designed so that the overall sum assured reduces by 20% per year from the end of year 3. Normally, the starting sum assured for the policy is the potential tax liability on the PET (i.e. 40% of the amount of the PET in excess of the available nil rate band). The sum assured should not be 40% of the value of the PET, unless of course the entire PET is potentially liable to IHT.
The lump sum provided would be in line with the potential IHT liability and reduces in line with taper relief available as per the table below.
The taper relief over the seven years is as follows:
| How long before death the gift was made | IHT liability |
|---|---|
| 0 – 3 years |
100% |
| 3 – 4 years | 80% |
| 4 – 5 years | 60% |
| 5 – 6 years | 40% |
| 6 – 7 years | 20% |
| Over 7 years | 0% |
The policies would be written under trust for the recipients of the gift so they can pay the IHT due in respect of the gift.
SCOTTISH WIDOWS PROTECT
With Scottish Widows Protect you can arrange this cover for your client by setting up one plan which has a number of individual term assurance policies to cover the potential liability. The premiums for the plan will usually be covered by either the £3,000 annual exemption or the normal expenditure out of income exemption.
On the example shown below the potential IHT liability is £100,000 in the first three years and then reducing in line with taper relief. The total amount of cover would reduce over the years in line with taper relief. If your client were to die in the first three years then all five policies totalling £100,000 would be paid. If this were to occur in year five then three policies would remain to pay out a total of £60,000 and so on.
| Plan | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 |
|---|---|---|---|---|---|---|---|
Policy 1 |
£20,000 | £20,000 | £20,000 | - | - | - | - |
| Policy 2 | £20,000 | £20,000 | £20,000 | £20,000 | - | - | - |
| Policy 3 | £20,000 | £20,000 | £20,000 | £20,000 | £20,000 | - | - |
| Policy 4 | £20,000 | £20,000 | £20,000 | £20,000 | £20,000 | £20,000 | - |
| Policy 5 | £20,000 | £20,000 | £20,000 | £20,000 | £20,000 | £20,000 | £20,000 |
| Total Cover | £100,000 | £100,000 | £100,000 | £80,000 | £60,000 | £40,000 | £20,000 |
| Monthly Premium | £50 | £50 | £50 | £44 | £36 | £26 | £20 |
By putting these policies in trust with the recipients of the gift as beneficiaries, your clients can ensure that the IHT bill can be paid.
You can find out more about our Gift Inter Vivos here (PDF, 658KB).
And you can find out more about our online trusts in our Guide to Trusts (PDF, 2MB).
Taper relief is only relevant when a failed PET has used up all the deceased donor's IHT nil rate band. So, as well as the recipient of the gift being liable for IHT on the excess over the nil rate band if the donor dies within 7 years, the deceased's estate will normally be liable for additional IHT of up to 40% of £325,000 (£130,000) for the same seven year period (based on the nil rate band until the end of 2025/26).
How much extra IHT the estate will pay depends on the amount of the death estate, who inherits, and the availability of any transferable or residence nil rate band. An additional 7 year level term assurance policy, written in trust, could provide funds for the estate to pay this IHT.
Every care has been taken to ensure that this information is correct and in accordance with our understanding of the law and HM Revenue & Customs practice. However, independent confirmation should be obtained before acting or refraining from acting in reliance upon this information.