Gift inter vivos are a special kind of term life insurance to cover the receiver from the inheritance tax liability over any gift. This gift could be anything including a cash lump sum given during the lifetime of the donor. It becomes inheritance tax free only if the donor survives for an immediate seven years after giving the gift. If not then the gift is considered as part of the estate and so is liable for IHT (Inheritance Tax).
The following table shows the IHT percentage liability:
|Policy Year||% of gift subjected to IHT|
|1 to 3 Years||100%|
The lump sum would reduce if the person dies and the % amount is specified in the table. It should be written under trust for the recipients of the gift. This should be done so that they pay IHT in accordance with the number of years passed since the death of the donor.
If the donor lives for seven years after giving the gift then the gift becomes free of IHT. Otherwise, the GIV policy is subjected to IHT. The gift is considered as potentially exempt transfer (PET) and that is why the GIV policy is also referred to as PET insurance. The amount of cover would decrease as per the taper relief mentioned in the table.
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