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Inter Vivos Insurance 

Inter Vivos Insurance 

Gifts to individuals during your lifetime that are not immediately tax-free will be considered as ‘potentially exempt transfers’ or PET’s. This means that they will only be tax-free if you survive for at least seven years after making the gift. If you die within seven years, the gift will be subject to Inheritance Tax. This is known as the seven-year rule. 

If you die within seven years of making a potentially exempt transfer, the transfer becomes chargeable. Its value will either reduce or eliminate your Nil Rate Band which means that less of your assets will be passed on to your beneficiaries tax-free. 

The rate of inheritance tax that the recipient will pay gradually reduces over the seven-year period – this is called taper relief. 

 

This is how tapering relief works: 

If you die within 7 years of making gifts in excess of your nil-rate band, the onus is on the recipient of the gifts, not your estate, to pay the inheritance tax bill due on the gift. So if you do not want to leave your loved ones with a nasty surprise after you pass away then you may wish to take out a gift inter vivos insurance policy.  

A gift inter vivos insurance policy is one that provides a lump sum to cover the potential IHT liability that could arise if the donor of a gift dies within seven years of making the gift. The lump sum provided is in line with the potential IHT liability and reduces in line with taper relief available (as shown above). 

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