Probate Tax, £3K gift question

Jane_Thomas

Hi

My Gran has passed away recently, as her Estate is simple my mum (executor) has decided get probate herself. My Gran was the last surviving as my Grandad passed away years ago.

We are completing the IHT205 Tax form. Question "did she give any gifts during the last 7 years which are not exempt from inheritance tax"

She gave £12K each to her only 2 children, the first child in Feb 2011 and the second child in Nov 2011. So in total £24K. We will obviously declare this on the form as it was 6 years ago.

1) How do they Calculate the tax for this? as the £24K was given away 6 years ago will it be lower tax than if she gave it away for example 2 years ago?
2) As she didn't give any other money away during the last 7 years will they average the £24K over the 7 years and decide she gave away £3K more than her £21K allowance over 7 years?
3) As the gift was given to the first child in Feb 2011 and the second child in Nov 2011 this falls into different tax years, will this make a difference to how much we pay back in tax?

thanks in advance for any thoughts

Yorkshireman99

How big is the estate? How big was her husbands estate? You can deduct £6,000 from the first gift and £3,000 from the second one. This is because you can effectively backdate the £3.000 annual gift allowance for the first one. Depending how much allowance can be transferred from her husband there may be no IHT to pay.

Jane_Thomas

The house is worth £375K (not sold yet)
Current Account has £25K
so total Estate worth is £400K as she doesn't have any other assets.

Her husbands inheritance tax will be passed to her so I presume this doubles her £325K tax allowance

The problem lies as she gave away £24K within 7 years of her death. This is what we will be penalised on? unless I'm not understanding correctly?

look forward to hearing from you

Jane_Thomas

Her husband did not give away any gifts as he died 20 years ago

getmore4less

If you work through the forms (use the notes as well) it works it out for you.

You don't work out the tax on gifts you work out how much belongs to the total.

As Y99 said

The first gift has 6k exempt
The second gift has 3k exempt.

That leaves 15k to get added to the total estate.

Working out tax comes later

In practice the gifts will never pay tax they just use up nil rate band.

If there are 2 nil rates(650k) available on 400k not a problem

As long as one of the kids gets 100k and gran died after the residential nil rate band came in then there is 425k available upto 850k with both.

It appears so far no IHT so even if the full 24k was put down it makes no difference.

Jane_Thomas

Thanks that makes sense. So we just declare it all on the form knowing that we fall well below inheritance tax rate so will not be penalised for her giving these two gifts away.

uknick

Yes, that is right