My wife and I, who are British, want to give our daughter, who is getting married early next year, a large sum to help with the purchase of a house. If we died before the seven-year tax-free limit expires after giving them the money, would any lump sums we gave her in earlier years be subject to inheritance tax? We have been living in Abu Dhabi for six months and expect to be here for another year, if this makes a difference. B N Abu Dhabi
Under United Kingdom law, it is possible to make a number of specific gifts before tax is payable. In addition to the £3,000 (Dh17,819) annual sum that can be gifted, £5,000 can be given to a child by each parent in consideration of marriage.
Gifts over these exempt amounts and made in the seven years before death are included in a person’s estate when calculating the liability to pay inheritance tax.
The seven-year period that B N is referring to is the length of time the donor of a gift must survive for a gift to fall outside of their estate for tax purposes and these payments are known as “potentially exempt transfers”.
The amount is fully accountable in the first three years after it has been gifted, but then the tax liability reduces over the next four years. UK nationals are subject to inheritance tax on their worldwide assets, no matter where they reside even if they are not liable to UK income tax.
If wills are set up so that property and assets are left to each other and then to the children, and the joint estate plus all gifts made within seven years of the date of death does not exceed your nil rate bands (£650,000 in total in the current tax year) there should be no inheritance tax to pay.
Update
In the column published on September 28, we included a question and response from a reader who was having problems with an Emirates NBD credit card. At the time of publication, the reader, S A J of Dubai, was still awaiting the promised upgrade to his credit card to compensate for the loss of other benefits as well as a payment of a travel insurance claim that had been submitted on May 26. The credit card upgrade took place soon after and S A J has confirmed that he has now received the refund from NGI Insurance. He has expressed gratitude to The National for assisting with resolving this issue.
Keren Bobker is an independent financial adviser with Holborn Assets in Dubai. Contact her at keren@holbornassets.com
