Gifting - Record Keeping for IHT Purposes

Mothman

My Mother wishes to start gifting some money to my brother & I. These amounts will be well above her £3k annual gift allowance but given her age and health issues they are likely to remain part of her estate under the 7yr rule. Is it advisable that some formal record be made of the gifts and if so what form should this take, is a simple letter to the gift recipient saying it is a gift without reservation sufficient?

[Deleted User]

What is the likely value of her estate? Is your mother a widow?

Jeremy535897

She writes a letter:
"Dear...
I am today making a gift of £x to you out of my natural love and affection for you.
Yours sincerely"

She keeps a spreadsheet or written note of all gifts made showing:
Date of gift
Source of gift (bank account details or whatever)
Amount of gift
Recipient of gift

unholyangel

Given you mention they're likely to form part of the estate due to age and health, what is the intended purpose of the gifts? Is deprivation of assets possibly going to be an issue? 

Mothman

As of today approx £1030k but 300k of that is in a flexible reversionary trust for my brother & I, so providing that does it's job (unknown) there is no IHT liability. She is a widow, my late father has 78.35% nil rate band remaing (approx £254k), so nil rate bands total £579k + £350k residential = £929k.

Mothman

unholyangel said:

Given you mention they're likely to form part of the estate due to age and health, what is the intended purpose of the gifts? Is deprivation of assets possibly going to be an issue? 

Gradualy passing on the value of her investments to my brother and I who are the sole benficiariy's of her estate so that we can make use of our ISA allowances to start to get the money into tax shelters. Deprivation of assets won't be an issue as her income, cash &  property assets are more than sufficient to fund the very highest level of private care to the end of her days should it be needed.

unkle

Assuming it's bank transfer/cheque and not cash then just keep a spreadsheet or similar and print out her bank statements. Unless they exceed the tax free allowance (IHT) taper relief won't apply anyway, but sounds that's not important anyway.

Keep_pedalling

Presumably you and your brother are her executors, so it will be very simple to be able to provide this info on IHT forms. No need to go to the trouble of writing letters, just keep a list of gifts with a copy of her will.

getmore4less

Any scope for gifts from income?

Big chunk now  to eliminate the IHT in 7 years (drip feed just extends the time)
(Check that trust does not trigger the 14 years rules)

Then regular top ups from income to stop the estate growing again.
House can be an issue.

 

macman

What getmore4less said ^. Assuming her income allows it, set up an SO to make monthly gifts out of her income to both you and your brother. There is no upper limit for this, as long as you can demonstrate that it's out of surplus income if HMRC should ever challenge it.

This is of course in addition to the gift allowance.

Mothman

getmore4less said:

Any scope for gifts from income?

Big chunk now  to eliminate the IHT in 7 years (drip feed just extends the time)
(Check that trust does not trigger the 14 years rules)

Then regular top ups from income to stop the estate growing again.
House can be an issue.

 

There probably is scope for gifting from income but it seems a bit of a minefield so haven't persued this thus far.

The flexible reversionary trust was set up 21yrs ago and from what I can understand with this trust type the initial capital plus any subsequent growth was outside of her estate after the first 7yrs. It's invested in an offshore investment bond and the eventual plan is for mum to assign the bond 50/50 to my brother & myself thus totally removing it from her estate, though this is unlikely to happen for a year or so. We know that there will be an income tax liability on the bond but this is unavoidable whatever we decide to do.