TaurusTheBull wrote:"I made cash gifts (by cheque) of about 150K to each of my kids some years ago so they could each buy their first home. In fact the seven years is almost up and may do so again. No problems arose at all."
Now you've confused me. I would like the option of making more than one gift to the same people, and assumed this could be done at any time if HMRC are not interested. You seem to imply that one gift must last 7 years of survival (to be tax free) before another can be made to the same person. I doubt this is the case but that's the way it has come across.
Your doubts are justified - you can indeed make more gifts within the 7 years, and each such gift that you make has its own 7-year period.
There is however an issue with making such gifts totalling more than the IHT allowance over a 7-year period. It's to do with how the IHT is assessed and collected. If the gifts you've made in the 7 years before your death total the IHT allowance or less, it's purely a matter for your estate to deal with: the gifts use up part or all of your IHT allowance, leaving less of it to be used by the assets you still owned when you died - and so the IHT bill to be paid by your estate is basically increased by 40% of the amount of the gifts, compared with what it would have been if all of them had been made 7+ years before you died. So basically it's all a matter to be settled between your executor(s) and HMRC.
But if the gifts you've made in the 7 years before your death total more than the IHT allowance, it gets more complicated. Your IHT allowance can only use up the first IHT allowance's worth of gifts you made in the 7 years before your death (see below about exactly what that means), and any gifts that aren't used up against the IHT allowance have their IHT assessed against their recipients (and collected from them, though if HMRC cannot collect from them, they can collect from the estate). So basically, if you make gifts totalling more than the IHT allowance in a 7-year period, there is a risk that settling your IHT will become a more complicated affair, involving not just your executor(s) and HMRC, but also the recipients of the gifts. And to mitigate the risk of the recipients facing an unexpected and potentially large IHT bill long after they've spent their gifts, you'll probably want to warn them about that risk - so that they know to keep an appropriate part of the gift in reserve against that risk and not spend it until the risk is over.
There is also a 'taper relief' that can come into play in those circumstances (i.e. you giving gifts totalling more than the IHT in the 7 years before your death, so that the recipients of some or all of the gifts become liable to IHT rather than your estate / executor(s)). This says that if the gift was given at least 3 years before death but less than 4, the IHT due is reduced to 80% of what it would otherwise be; if at least 4 years before death but less than 5, to 60% of what it would otherwise be; if at least 5 years before death but less than 6, to 40% of what it would otherwise be; and if at least 6 years before death (and less than 7, since the gift would be entirely exempt if given at least 7 years before death), to 20% of what it would otherwise be.
On the detail of exactly how the gifts are used against the IHT allowance, it is almost literally the
first gifts you made in those 7 years. I.e. when it comes to deciding exactly which gifts are used (which can matter because of the taper relief), gifts made on earlier dates are used before those made on later dates. The one exception is that if you make multiple gifts on the same day, and some but not all of them need to be used against the IHT allowance, the time of day that they were made doesn't get taken into account. Instead, they're used in proportion to their sizes - e.g. if you make gifts of £10k, £20k and £30k on the same day, and earlier gifts have already used up all but £36k of your IHT allowance, then that last £36k of the IHT allowance uses £36k/(£10k+£20k+£30k) = 60% of each of them, leaving gifts of £4k, £8k and £12k to have the IHT paid by the recipients. But if e.g. the gift of £30k had been made one day later, the last £36k of the IHT allowance would use up the entirety of the £10k and £20k gifts and £6k of the £30k gift - so the recipients of the first two wouldn't face an IHT bill and the recipient of the third would face an IHT bill on £24k. So if you want to make gifts totalling more than the IHT allowance in a 7-year period to multiple recipients, and to treat those recipients entirely equally, be aware that you'll probably want to take care about the exact dates of the gifts.
Note that because those rules say to use the IHT allowance first against the oldest gifts, which would benefit most from the taper relief, they basically minimise the effect of the taper relief. One would prefer to use the IHT allowance against the newest gifts first, so that the gift recipients would get as much taper relief as possible - but unlike the situation for many other tax allowances that can be used in the way that is most beneficial to the taxpayer, one's estate and the gift recipients don't get any choice about how it is used. I'd guess that this is because multiple taxpayers are involved, giving any such choice could lead to hard-to-resolve conflicts of interest...
Gengulphus