Gifts before a death

ejwoj

Hi, I'm looking for some guidance re inheritance tax on gifts given shortly before death. My father has recently passed and this Christmas he gave myself and my brother a cheque each for £4000 and two years ago he brought my sister a car. None of us have any issues declaring this, but we have different family members saying different things and I'm being lectured about the fact that I've just spent some of the money so I can be part of the motorcycle funeral procession.
I'd really like some impartial advice from somebody who knows what they are talking about.

EJ

TcpnT

Because the gifts were made within seven years of his death they will become part of the value of his estate and should be declared as such on the probate application forms. If the total value of the estate including the gifts is under the IHT threshold (which is a min of £325,000 and up to £1m depending on the situation) then there will be no IHT payable and the gifts will have no effect. There is also an annual gift exemption of £3000 which can be carried forward one year if unused - so potentially £6000 in a particular year so the gifts of £8000 may only count as £2000 in the estate.
On the other hand this may not be the question you are asking. Are some family members suggesting that you should return this money to be shared between others? If so this is not the case as long as the gifts were given freely with no strings attached and no coercion.

ejwoj

That's very helpful. No one has said I should be giving the money back but it has been said that I shouldn't be spending it, or I should make sure I have plenty left because of the IHT.
EJ

Malthusian

They have no idea what they are talking about. Even if the gifts had been subject to IHT, the estate would have been liable, not you. You would only have needed to keep money back to pay the IHT bill if there was no money in the estate to pay for it - which would be very rare for an estate big enough to pay IHT.

ejwoj

Thank you very much, both.
EJ

xylophone

Re failed PET
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm22076

https://www.canadalife.co.uk/adviser/news/inheritance-tax-how-to-declare-and-who-pays
Some gifts, known as potentially exempt transfers (PETs), may become chargeable to IHT if the donor dies within seven years of making the gift. Where tax is due on a failed PET it is the person who received the gift that must pay the tax, but remember they may be able to benefit from taper relief. If the person receiving the gift can't or will not pay, the amount due then comes out of the deceased’s estate.
http://www.markmclaughlin.co.uk/iht-gift-recipients-beware-2/

Nanawendy

My father recently passed away leaving £21,000 to my mother who wants to give to her 5 adult children. She is elderly and in poor health.   I’m concerned that it may cause future difficulties with her council tax/housing benefit.  If she keeps it she loses her mean tested  benefits anyway.  She gave us £1,700 between us last Christmas.  My understanding is that she can gift another £4,300.  Anyone advise me if gifting (Fathers) money would be seen as manipulating her finances as way to continue claiming benefits?  She has some savings of her own but doesn’t own property so inheritance tax would not be due.

Keep_pedalling

Nanawendy said:

My father recently passed away leaving £21,000 to my mother who wants to give to her 5 adult children. She is elderly and in poor health.   I’m concerned that it may cause future difficulties with her council tax/housing benefit.  If she keeps it she loses her mean tested  benefits anyway.  She gave us £1,700 between us last Christmas.  My understanding is that she can gift another £4,300.  Anyone advise me if gifting (Fathers) money would be seen as manipulating her finances as way to continue claiming benefits?  She has some savings of her own but doesn’t own property so inheritance tax would not be due.

Your understanding is incorrect. The £3000 annual gift allowance is an inheritance tax exemption, which does not apply here.

Giving her money away is deliberate deprivation of assets, if she does it and fails to declare it she would be committing benefit fraud. 

hb2

To add to the above - this would also count as deprivation of assets if the mother were to need  care* in the future. In that case, she would be assessed as if she still had the money and would be expected to pay for the care.

*Edit - I originally put 'residential care' but this can also apply to care given in the mother's own home.

Nanawendy

Thank you. I will pass this information to my siblings and make it clear we do not want her to give us any money and why.

getmore4less

to clarify the OP question

IHT on gifts is only payable by the beneficiary if there is tax on the failed PET.
unless there are lots of other gifts in the last 7 years there is no tax on these failed PETS as they are well under the nil rate band(NRB).
Gifts use the NRB up first leaving the estate to pick up any extra tax due to a reduced NRB

the previous link to the HMRC manual was for the QSR section
this is a better example(read the whole section starting at 14000
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14512