Inheritance Tax - Gifts

voodooray123

Hi all
First message here so go gentle on me please.
My father recently passed away on 26/12/20 and I am attempting to do the probate myself after some hefty quotes from professionals.  My father gifted:
£36,000 on 23/03/15  to me
£40,000 on 25/04/16 to my sister
£4000 on 01/06/16 to me
I had thought that as he lived for more than three years from the date of the gifts but not seven years that we would get a tapered relief on the gifts.  But it appears that having researched online that is not the case as the gifts did not exceed the £325,000 nil band  Therefore, these gifts will be taxed at the full 40% as the remaining value of his estate is more than £500,000 and he is divorced.
1) Am I correct that we pay the full amount?
2) Does the tax payment come out of the estate or are my sister and I liable and need to pay it directly ourselves to HMRC?
3) I am aware a person is able to gift £3000 per year; can we therefore be exempt on IHT for this amount for 2015 and 2016?
4)  I see that you can roll over the gift amount to the following year, can my father (or his estate) make a'gift' of £3000 for the years 2019 and 2020 even though he didn't actually make that gift whilst alive but it can be done in retrospect as it were as we are the beneficiaries of the will.  Seems a bit strange that to me but I saw suggestion of it elsewhere.

Thanks
Steve

Mickey666

1.  I don't think the gifts themselves have to exceed the NRB, so unless I'm misunderstanding you I'd expect the failed PET taper relief to apply.
2. I'm pretty sure the estate pays the IHT.  It's certainly an easy way of handling it and once all the estate debts/taxes are paid it makes it pretty clear what's left for distribution.  Having said that, I'm not certain that an estate CANNOT be distributed tax-free, but I think the executor could be storing up trouble for themselves if the beneficiaries decline to pay up for any reason - remember that executors are financially responsible for executing the will correctly, leaving themselves personally open to possible claims.  I wouldn't risk it as an executor.
3. I don't think so.  I'm guessing the amounts you mentioned were paid as one transaction on those dates, in which case there will be no corroborating evidence, eg bank statements, to show that that £3000 gifted each year.
4.  I don't think a person can make any decision after death, all they can do is convey their wishes in their will.

getmore4less

The end effect is the gifts use up nil rate band leaving less for the rest of the estates 

You can probably knock £9k off the total for years 14/15/16

Don't think you can utilise the unused years. 

Qualifying assets upto £175k to use the Residential nil rate band, property or downsize.

macman

Sorry for your loss. IHT must be paid by the estate: you won't get probate until it is. There is no liability on you or your sister whatsoever, it's a tax on the estate. However, if you were to distribute before all tax and debts are paid, then you would face legal liability for the unpaid debts to HMRC.

Er, no, you can't 'gift' retrospectively after death on the basis that it's 'probably what the deceased would have wanted'. As executors you are legally liable to carry out your fathers wishes as defined by his will: no more, no less.

What is the estimated total value of the estate, and how much is the property element within that?

Are you and your sister the sole beneficiaries?

voodooray123

Thanks for your answers so far.  
The property is worth about £600,000.  There is about £450,000 in investments and cash.  The beneficiaries are 41% each to my sister and me, the remaining 18% to grandkids.
Whilst there is no denying that it is a lovely windfall, we will end up paying about £250,000 in IHT and as my father already paid tax on the estate during his lifetime, it definitely feels like double taxation.  
Thanks for your well wishes.  
Steve

voodooray123

The above figures do not include the £80,000 in gifts I mentioned so actually the IHT bill will be more!

Jeremy535897

Did your mother's estate benefit from her nil rate band, or did her estate pass to your father? It may be that there is unused nil rate band and residential nil rate band available to be transferred. See https://www.gov.uk/guidance/inheritance-tax-transfer-of-threshold

Grumpy_chap

Jeremy535897 said:

Did your mother's estate benefit from her nil rate band, or did her estate pass to your father? It may be that there is unused nil rate band and residential nil rate band available to be transferred. See https://www.gov.uk/guidance/inheritance-tax-transfer-of-threshold

Is that relevant given the OP said about the father:

voodooray123 said:

he is divorced.

Keep_pedalling

voodooray123 said:

Thanks for your answers so far.  
The property is worth about £600,000.  There is about £450,000 in investments and cash.  The beneficiaries are 41% each to my sister and me, the remaining 18% to grandkids.
Whilst there is no denying that it is a lovely windfall, we will end up paying about £250,000 in IHT and as my father already paid tax on the estate during his lifetime, it definitely feels like double taxation.  
Thanks for your well wishes.  
Steve

I doubt there is any double taxation, there is almost certainly a massive untaxed gain in the house value. 

Jeremy535897

Grumpy_chap said:

Jeremy535897 said:

Did your mother's estate benefit from her nil rate band, or did her estate pass to your father? It may be that there is unused nil rate band and residential nil rate band available to be transferred. See https://www.gov.uk/guidance/inheritance-tax-transfer-of-threshold

Is that relevant given the OP said about the father:

voodooray123 said:

he is divorced.

Yes, I missed that.

unkle

It's done in order;
So gifts first, as they were below £325k they simply use up £80k of the allowance so no taper relief I'm afraid. Leaving £245k of usual allowance plus (depending on date of death) £175k property allowance. There is no tax payable by the gift recipients in this instance as they form part of the tax free allowance.
So tax will be payable on £1.05m - £175k - £245k  = £630k and £252k tax payable @ 40%. So just shy of £800k to distribute.
This is a very misunderstood part of IHT, gifts will only receive taper relief for the amount gifted above £325k (or whatever the 0% band is).
HMRC may well question you using £3k per year in 15 & 16 from those gifts as more than £3k was given so they will argue he wasn't gifting £3k, but I'd put it on the form and see how you go but it's only saving you £2,400 at most.

You can't gift the £3k after death.