Haphazard gift giving

Dibblez

My mother left an estate of over £500,000. Over the last seven years of her life, she consistently gave a minumum of £14,000 per annum to myself and my sister (some years giving more to one of us than the other). She had a vague understanding of inheritance tax allowances and considered that to be comfortably affordable from her disposable income and therefore tax free. Also, when she felt she could afford it, she would sometimes make other substantial cash gifts to us from her savings.

However, the gifts from her income were often mixed in with the gifts from her savings, and the payments were always on different dates and of different sizes. Other than our conversations, I don't have any evidence that she was intentionally giving the £14,000 from her income.

Is the tax office likely to accept that £14,000 per year as being covered by the allowance, or are we looking at a very substantial additional tax bill?

getmore4less

Any transferable nil rate bands and a house to benefit from the residential nil rate band.

What was the level of income

Keep_pedalling

Dibblez wrote: »

My mother left an estate of over £500,000. Over the last seven years of her life, she consistently gave a minumum of £14,000 per annum to myself and my sister (some years giving more to one of us than the other). She had a vague understanding of inheritance tax allowances and considered that to be comfortably affordable from her disposable income and therefore tax free. Also, when she felt she could afford it, she would sometimes make other substantial cash gifts to us from her savings.

However, the gifts from her income were often mixed in with the gifts from her savings, and the payments were always on different dates and of different sizes. Other than our conversations, I don't have any evidence that she was intentionally giving the £14,000 from her income.

Is the tax office likely to accept that £14,000 per year as being covered by the allowance, or are we looking at a very substantial additional tax bill?

No, they will not accept it without a detailed financial breakdown of gifts and expenditure. Before you start looking at gifts from excess income do you understand about residential and transferable nil rate bands?

Was your mother a widow and if so did she inherit everything from her husband?

Was she a home owner?

Dibblez

I've already taken the residential nil rate band into account. She was a widow, but there's no transferable tax-free allowance from her husband.


Given enough time, I can probably work out her income and expenses from each of the seven years. I can also provide a detailed list of all payments. I can't say for certain which payments (or parts of payments) were from her income and which were from savings, but I can say that she was consistently giving £14,000 per year from income.


If I was to artificially label and divide up the payments as coming from income or savings, would that be allowed?

Keep_pedalling

Dibblez wrote: »

I've already taken the residential nil rate band into account. She was a widow, but there's no transferable tax-free allowance from her husband.


Given enough time, I can probably work out her income and expenses from each of the seven years. I can also provide a detailed list of all payments. I can't say for certain which payments (or parts of payments) were from her income and which were from savings, but I can say that she was consistently giving £14,000 per year from income.


If I was to artificially label and divide up the payments as coming from income or savings, would that be allowed?

Her husband may have used up his entire nil rate band, but his residential nil rate band will still be transferable.

Be very careful about creating artificial accounts, remember that it has to be excess income which won’t be the case if she was dipping into saving to pay for things at the same time.

Linton

Dibblez wrote: »

.....


If I was to artificially label and divide up the payments as coming from income or savings, would that be allowed?

There is no need to do anything artificial as it's the totals that matter rather than the indiviual gifts....


Once you have identified all her gifts, her income and her non gift expenditure for each of the past 7 tax years it is a simple matter to determine her total "normal" gifts from income and total taxable gifts for each year. Note that you can carry over excess income from the previous 2 years. Carry over from more than 2 previous years may lead to HMRC taking a particular interest in the situation so you probably dont want to go down that route.