In general seven years after you make the gift. There is however potential benefit after just six months or so as having given up the capital it can no longer earn you any interest from it - your son instead gets this value in not having to pay for a larger mortgage and in the hopeful capital appreciation on the property he is buying. Such 'growth' on your £50,000 is effectively outside your estate from day one.
Gifts made within seven years may be 'added back' to the value of your remaining estate when you die. However there is also a sliding scale which means that any gift made within three years of your estate is counted as being 100% still within your estate. However any gift made over three years and up to four years before your death will only see the taxman add back 80% of the value of the gift (as still being regarded as part of your estate). The amount liable to recall increases by 20% each year thereafter such that after five years and up to six years before your death only 40% of the gift would be treaded as added back to your estate, then 20% and finally, after seven full years or more, the gift should escape inheritance tax completely no longer being regarded as any part of your estate.
Do be aware that IHT is not a threat at all if the value of your estate, including such a £50,000 gift is worth £325,000 or less at the time of your death. This is the current 'nil rate band'.
If you are married or a widower/widow to someone who left everything to you, their spouse, and they have not or did not use any/all of their own nil rate IHT (also currently £325,000) when they died - then you could end up with a double allowance for a once combined estate worth £650,000.
In such circumstances you need only worry about IHT if your combined estate is worth more than two nil rate bands (and the first to die did not use any/all of their personal nil rate band).
Note that there are also modest gifting exemption which means that you may give away up to £3,000 a year (to as many different people as you like) without these modest gifts being counted in any reckoning. Indeed making a gift of £50,000 if you have not made any gifts in the last seven years would actually attract a further £3,000 ('unused') gifting exemption for any unused £3,000 gift allowance from the previous tax year. Most people thus have £6,000 immediate exemptions by the time they do start making gifts to children – being £3k for this year and an assumed £3k unused exempt allowance from the previous year. This will save 40% or £2,400 in death duties straight away.
To confirm this last point, as an absolute minimum, even if you died a day after gifting £50,000 to your son only £44,000 of it would be treated as added back to your estate (claiming £3,000 annual exemptions for the current and (assumed unused) previous years allowances.
Finally please take careful note that any gift must be outright. If you make the gift expecting its return, in whole or in part, then you are treated as 'reserving a benefit'. HMRC will treat any reservation of benefit issue as if the gift were never made. As such they will always add the £50,000 (or whatever amount claimed to have been gifted but a benefit actually retained to by donor) as still belonging to your estate, regardless how much time has passed.
Hope this helps
| 11.28.12 @ 20:05