Gift inter vivos query for gifting PCLS

Wildparaplanner

Hi,

We have a client (Mr) with enhanced protection with lump sum protection which results in them being able to take nearly £1m in PCLS. They have a substantial asset base and level of wealth resulting in an existing large IHT bill (over £5m). The client is intending to gift the PCLS to children now. Client is married. The estimated IHT liability has been calculated on the basis of all assets passing to the surviving spouse on first death with 2nd death the main consideration.

As far as the gifting the PCLS is concerned:

1) Is the PET only considered to be from Mr?
2) If so, is only 1 nil rate band considered on the gift when calculating the IHT liability of the gift?
3) If so, is the Gift Intervivos policy made on an IHT liability of £1m - £325,000 x 40% = £270,000?

To better utilise the nil rate bands, should the PCLS be split between Mr and Mrs and made as a joint gift?

How is it best to approach this kind of strategy?

Thanks

benjaminfabi

1. Yes if it goes from his pension to his bank and to his kids, it can't be from anyone other than him. But 'not necessarily' if it goes from his pension to joint bank account and then to his kids, as it legally (although not necessarily for IHT scrutiny) becomes joint property as soon as it hits the joint bank.
2. If 1 is yes, then yes. Otherwise, no.
3. If 1 is yes, single life (or life of another) GIV for the PET liability, and a 7 year term assurance for £130,000 (loss of NRB). Could get the kids to pay for the GIV, if they'll be the ones with the tax liability.

Gifts are treated in chronological order, so it's important that either: all gifts are made on the same date so any failed PET liability can be shared or; the Will specifies who is liable for the IHT on failed gifts made before death. If you don't do this, then whoever gets the first £325,000 has no IHT liability.

I'm not sure it really makes any difference as to joint or sole gift. Deckchairs on the Titanic comes to mind - but someone with more time to think about it might come up with a reason to make it joint?