7 year rule on gifts

cfw1994

Having just referenced it in a response, this got me thinking!
Regarding the 7 year rule on gifts made within 7 years of subsequent death then being taxable.

How does this work in practice?

I was executor many years ago for my final parent’s ultimate demise, and this was not relevant (small numbers)....

Do HMRC investigate accounts in detail now, or is the executor legally required to delve through 7 years of accounts and declare?
Or is it commonly ignored!

Just curious!

Keep_pedalling

It is the executors responsibility to provide those details. If they fail to do so then they could find themselves responsable for paying the tax if HMRC discovered the omission and they had already distributed the estate, so not something an executor should ignore.

A sensible testator will keep a record of gifts with their will to make life easier for their executors, which is what we do.

Brynsam

cfw1994 wrote: »

Do HMRC investigate accounts in detail now, or is the executor legally required to delve through 7 years of accounts and declare?
Or is it commonly ignored!

By definition it's impossible to know how often executors 'ignore' it, but from personal experience/experience of close friends, HMRC take a very keen interest indeed!

OldMusicGuy

Keep_pedalling wrote: »

A sensible testator will keep a record of gifts with their will to make life easier for their executors, which is what we do.

This. My FiL has been giving gifts to his grandkids over the last 5 years or so, and in chatting with him he may be close to the IHT limit (depends what happens before he dies). So in reading about this, the executors need a list of all gifts given in the last 7 years. So once an elderly person gets to the "giving money away" stage, they should keep a simple record of how much they gave to whom and when, and make sure the executors are aware of this.

kidmugsy

We keep a grandly-named "Schedule of Gifts". Though the flow has noticeably dried up recently because we are not rich enough to throw money around. We tend to have my wife make any gifts because she is likely to live longest.

Keep_pedalling

OldMusicGuy wrote: »

This. My FiL has been giving gifts to his grandkids over the last 5 years or so, and in chatting with him he may be close to the IHT limit (depends what happens before he dies). So in reading about this, the executors need a list of all gifts given in the last 7 years. So once an elderly person gets to the "giving money away" stage, they should keep a simple record of how much they gave to whom and when, and make sure the executors are aware of this.

If you want to reduce the amount of IHT your estate pays, you don’t really want to wait until you are in you dotage. You want to be giving at an age where the chances are that you will live another 7 years, and be young enough to cover the risk of an early demise with low cost term insurance.

POPPYOSCAR

cfw1994 wrote: »

Having just referenced it in a response, this got me thinking!
Regarding the 7 year rule on gifts made within 7 years of subsequent death then being taxable.

How does this work in practice?

I was executor many years ago for my final parent’s ultimate demise, and this was not relevant (small numbers)....

Do HMRC investigate accounts in detail now, or is the executor legally required to delve through 7 years of accounts and declare?
Or is it commonly ignored!

Just curious!

Yes I have wondered the same.

How exactly is this done?

How on earth can they even find out?. There may have been accounts that were closed along the way? Do they have to contact every financial institution to enquire?

Even if they do have the paperwork, if cash has been withdrawn how can they know what happened to it?

Tom99

[FONT=Verdana, sans-serif]I expect it is very rare for HMRC to instigate an investigation into whether the £3k pa allowance has been exceeded unless there are suspicious circumstances.[/FONT]

[FONT=Verdana, sans-serif]They would start with the same problem as an executor who has not been left any info by the donor.[/FONT]
[FONT=Verdana, sans-serif]You could start with 7 yrs worth of accounts for those account declared on the IHT forms. That info may or may not be available.[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]Once you have those statements how would you identify a gift? If its a cheque it will just have a number so will the banks be asked to produce the actual cheque and can Banks do that these days. Once you have the cheque you see its to an individual, its a nice round amount say £1,000 so was that a gift of for some gardening or painting the house?[/FONT]

[FONT=Verdana, sans-serif]If its say a faster payment you will just have the name the donor gave that payment which may or may not be useful.[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]Then with interest rates changing all the time the donor may have had many accounts which are now closed. How would HMRC find those? In theory they get notified of any interest paid but that system seems far from perfect.[/FONT]

[FONT=Verdana, sans-serif]Next suppose it was not a cash gift but a valuable item just given away. Maybe the item was insured so would all house contents and car insurers in the past 7 yrs need to be contacted, the may not even be a record of them if the donor shopped around each year.[/FONT]

[FONT=Verdana, sans-serif]I suspect that unless the donor left a record or the executor is aware of a large gift, they just get forgotten about.[/FONT]

Sea_Shell

^^^ This. Surely HMRC have got bigger fish to fry than investigating whether Uncle Joe Bloggs gave £4000 to his Niece 6 years before he died, from an account that has been closed, switched etc.

A potential headache for the executor, yes, but i'd have thought risk of investigation was slim.

However, if the estate is on the cusp of being liable for IHT, then maybe these ARE the estates they target for investigation - who knows??!!

Linton

If IHT clearly isnt due anyway then it doesnt matter very much. However if the deceased was wealthy (which can probably be determined from tax and bank records) then it is no great effort to identify large payments and ask the executor for an explanation. When one discrepancy is found HMRC would no doubt look further.


It seems to me that it is no different to say getting paid cash in hand to avoid tax. Trivial infringements wont matter, but if you are making serious money from it you can expect unpleasant consequences. A sensible executor should make reasonable efforts to identify and report on gifts.


The estate for which I was an executor included gifts totalling 6 figures. It took some work to extract the data and prove that they all met the "gifts from income" rules. To help HMRC I was able to provide perhaps 20 pages of annotated bank statements and tables showing that there was no depletion of savings. Hopefully they checked them all.

Keep_pedalling

Like self assessment, IHT returns rely on the honesty of the person or persons doing the return. The vast majority will not be checked, but something like a house valuation that turns out to be valued significantly under its sale price could trigger a full investigation.

HMRC are also known for carrying out random investigations, so although the chances of this happening to an individual executor are small, the consequences could be very serious if you have not done your job properly.