Gifts - 7 year rule PET

Gnittih

If a Gift is made to somebody other than to a spouse, and the Gift comes out of Assets which are greater than the NRB,and the Gift maker dies within 7 years of the Gift being made...who pays IHT?...is it the person receiving the Gift or is it from the deceased estate?

HappyHarry

Gnittih wrote: »

If a Gift is made to somebody other than to a spouse, and the Gift comes out of Assets which are greater than the NRB,and the Gift maker dies within 7 years of the Gift being made...who pays IHT?...is it the person receiving the Gift or is it from the deceased estate?

[STRIKE]The estate if it has sufficient funds, if not, the beneficiary has to pay.[/STRIKE]

edited - completely ignore this nonsense!

xylophone

http://www.ehlsolicitors.co.uk/who-is-liable-to-pay-inheritance-tax-is-it-is-due/

brewerdave

Always struck me as a bit of an "honesty box" operation .
When I was sorting out my late mother's estate, there was no way I could identify where all the cash/cheques had gone in the previous 2 years yet alone 7 years!!

Keep_pedalling

brewerdave wrote: »

Always struck me as a bit of an "honesty box" operation .
When I was sorting out my late mother's estate, there was no way I could identify where all the cash/cheques had gone in the previous 2 years yet alone 7 years!!

To make things simple for your executors, you should keep a record of your gifts, so they don't have to trawl though years of bank statements. We have a spread sheet and keep a copy with a copy of our wills. We also send an updated copy once a year to our solicitor to put with the original.

Also worth considering taking out term insurance to cover any IHT falling on PET gifts in case you die prematurely.

Malthusian

brewerdave wrote: »

When I was sorting out my late mother's estate, there was no way I could identify where all the cash/cheques had gone in the previous 2 years yet alone 7 years!!

But you can instantly discount anything totalling £3,000 in a single tax year, anything out of her normal income that did not decrease her standard of living, and small gifts around Christmas / someone's birthday or larger ones for someone's wedding. So cheques here and there for a few hundred or possibly even a few thousand don't need looking into.

If on the other hand you see a cheque for £100,000 leaving her bank two years ago and there isn't a 65-reg sports car sitting on her driveway, then clearly you do need to make all reasonable efforts to find out whether it was a gift.

But only if her estate plus the mystery cheque is above her available nil rate band, otherwise it still doesn't matter.

Except of course that if you saw £100,000 leaving your mother's estate and you didn't know where it had gone, then you'd want to find out what it was whether there was a potential IHT issue or not.

The_Doc

HappyHarry wrote: »

The estate if it has sufficient funds, if not, the beneficiary has to pay.

Not correct. As xylophone's link explains:

"Liability for IHT on any gift made by the deceased during the seven year period up to his death rests with the person receiving the gift. This can mean that if you receive a gift from a person and they then die within 7 years, HMRC could come back to the recipient to claw back IHT."

HappyHarry

The_Doc wrote: »

Not correct. As xylophone's link explains:

"Liability for IHT on any gift made by the deceased during the seven year period up to his death rests with the person receiving the gift. This can mean that if you receive a gift from a person and they then die within 7 years, HMRC could come back to the recipient to claw back IHT."

Of course it is. You are quite correct. Clearly my brain wasn't fully engaged when I posted!

To clarify, the beneficiary will be liable for the IHT, and can apply taper relief if appropriate. If the beneficiary can't/won't pay, then the executors will be liable to pay (from the estate).

Linton

The_Doc wrote: »

Not correct. As xylophone's link explains:

"Liability for IHT on any gift made by the deceased during the seven year period up to his death rests with the person receiving the gift. This can mean that if you receive a gift from a person and they then die within 7 years, HMRC could come back to the recipient to claw back IHT."

mmm I had always understood that the value of the gifts was added to the estate and so in the first instance the estate must pay the IHT. However should the estate have insufficient assets HMRC at their discretion could charge the recipient.

This is partially borne out by gov.uk but with an extra twist - if the total value of all IHT liable gifts made in the 7 years exceeds £325K, then the recipients are liable for the IHT. See:
https://www.gov.uk/inheritance-tax/gifts

HappyHarry

To clarify here are a couple of examples:

Total estate is £10m.

No other gifts have been or will be made.

Example 1. Gift less than NRB.
- Gift is made of £50,000 to an individual (PET)
- Donor dies 5 years’ later.
- After taking off the £3,000 annual allowance, and rolling back one year, the taxable gift is £44,000.
- The NRB of the donor’s estate wil be reduced to (£325,000 - £44,000) = £281,000.
- In effect, the donor’s estate has paid the IHT.

Example 2. Gift in excess of NRB.
- Gift is made of £500,000 to an individual (PET)
- Donor dies 5 years’ later.
- After taking off the £3,000 annual allowance, and rolling back one year, the taxable gift is £494,000.
- As the gift exceeds the NRB, the NRB is applied to the gift, reducing the taxable gift to (£494,000 - £325,000) = £169,000
- Taper relief is applied to the inheritance tax charge, i.e. 40% of the 40% IHT is 16% IHT to pay on this gift.
- 16% of £169,000 = £27,040
- The £27,040 is due to be paid by the beneficiary
- The donor’s estate now has no NRB remaining, and so IHT of 40% of the remaining estate will be payable by the estate.

Hope that makes amends for my previous daft comment.