Gifting - what counts as gifts out of income and what doesn't!?

RociCap

Currently doing a family member's IHT forms and I am so confused - I was expecting it to be very straightforward as they had literally one bank account and, barring a couple of bits of jewellery, no other assets at the time of their death. Their house was sold to pay for care.

We're trying to work out which gifts we need to include in the IHT forms. Some were made to their child - £1k here, £200 there - over the years, and same to grandchildren. Some are birthday and Christmas gifts and can be shown in the date they were given, so I assume we can write those off.

But now I'm reading things about gifts out of income and I'm not sure what classes as a 'regular pattern of payments' - does that mean literally regular, i.e. in set periods? Or that it didn't just start randomly out of nowhere?

And how do you apply small gift exemptions (You can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.).

Say she gave £200, £400, and £3k to one grandchild that year, and £1k, £200 and £50 the other (and no other gifts). Can we discount the first grandchild's £200 gift, and the second's £200 and £50, as they're below the small gift exemption, and then use the £3000 gift allowance that year to account for most of the remaining £4k gifted? 

Or do we have to class the second granchild's £200 and £50 as small gift exemptions, but make their £1k gift be countable so that we're not using the annual allowance on them, and then discount £3k of the first grandchild's total £3600 (as we haven't used the £3k gifting allowance anywhere else)?

 REALLY wish we'd used a solicitor, now...!

Keep_pedalling

The £250 pound exemption applies to annual gifts of no more than that amount to any one individual, so none of those gifts you mentioned falls under that exemption.

Gifts from income only apply to excess income so if you want to claim that you have to show both income and expenditure (see form IHT403).

As her estate is no where near IHT territory, you don’t really need to worry about claiming anything other than her annual £3000 annual exemption. Also, as it seems she only left a cash estate probate will not actually be required if the amount in her bank account is below the bank’s maximum that they will pay out without probate.

Which bank, and how much is in the account?

RociCap

Keep_pedalling said:

The £250 pound exemption applies to annual gifts of no more than that amount to any one individual, so none of those gifts you mentioned falls under that exemption.

Gifts from income only apply to excess income so if you want to claim that you have to show both income and expenditure (see form IHT403).

As her estate is no where near IHT territory, you don’t really need to worry about claiming anything other than her annual £3000 annual exemption. Also, as it seems she only left a cash estate probate will not actually be required if the amount in her bank account is below the bank’s maximum that they will pay out without probate.

Which bank, and how much is in the account?

The estate is roughly ~£315k, with a £5k donation to charity in the will. So £310k. Including the roughly £15k gifts over the years before she died, it takes it above the threshold - hence all the faffing!

(The house was sold about a year ago to pay for care with the anticipation it'd be a good few years needed before she passed away, but she still had a fair amount of savings at the time, so when she died there was a big chunk of cash left in her bank (which is Natwest). So above the level they'd let us take out without probate.)

theoretica

Even though the house was sold, I believe it may be possible to claim the additional nil rate for it - worth looking into as it would make your problems go away!

Marcon

RociCap said:

Keep_pedalling said:

The £250 pound exemption applies to annual gifts of no more than that amount to any one individual, so none of those gifts you mentioned falls under that exemption.

Gifts from income only apply to excess income so if you want to claim that you have to show both income and expenditure (see form IHT403).

As her estate is no where near IHT territory, you don’t really need to worry about claiming anything other than her annual £3000 annual exemption. Also, as it seems she only left a cash estate probate will not actually be required if the amount in her bank account is below the bank’s maximum that they will pay out without probate.

Which bank, and how much is in the account?

The estate is roughly ~£315k, with a £5k donation to charity in the will. So £310k. Including the roughly £15k gifts over the years before she died, it takes it above the threshold - hence all the faffing!

(The house was sold about a year ago to pay for care with the anticipation it'd be a good few years needed before she passed away, but she still had a fair amount of savings at the time, so when she died there was a big chunk of cash left in her bank (which is Natwest). So above the level they'd let us take out without probate.)

Gifts from income are quite difficult to demonstrate (yes, it has to be a regular pattern of payments at regular intervals, and has to be shown as being paid out of income, not savings/capital), so I'd leave that well alone.

Any of her late spouse's nil rate band still available? As already mentioned above, could be a claim for the extra nil rate band in respect of the property: https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

I'd stop faffing! Sounds as if you are more or less on the £325K threshold and if you are over it, only by a very small amount. 

RociCap

theoretica said:

Even though the house was sold, I believe it may be possible to claim the additional nil rate for it - worth looking into as it would make your problems go away!

Jesus, I've just been looking into it and it seems that might be the case. Twice as bloody complicated, but possible...!

Thank you, so much!

Keep_pedalling

RociCap said:

theoretica said:

Even though the house was sold, I believe it may be possible to claim the additional nil rate for it - worth looking into as it would make your problems go away!

Jesus, I've just been looking into it and it seems that might be the case. Twice as bloody complicated, but possible...!

Thank you, so much!

No might about it, if most of her estate is going to children or grand children. If she was a widow then you will not even need to claim the RNRB as you will be able to claim her husband’s transferable NRB if it was not all used up.

That would make life simpler as you can get away with using IHT205 rather than IHT400 and all its associated supplementary sheets.

RociCap

Keep_pedalling said:

RociCap said:

theoretica said:

Even though the house was sold, I believe it may be possible to claim the additional nil rate for it - worth looking into as it would make your problems go away!

Jesus, I've just been looking into it and it seems that might be the case. Twice as bloody complicated, but possible...!

Thank you, so much!

No might about it, if most of her estate is going to children or grand children. If she was a widow then you will not even need to claim the RNRB as you will be able to claim her husband’s transferable NRB if it was not all used up.

That would make life simpler as you can get away with using IHT205 rather than IHT400 and all its associated supplementary sheets.

I've been having a look and I thought the same about her husband's NRB, but he died before I was born, nearly 40 years ago (this is my grandparents I'm talking about - my mum and only child of grandparents is dead, so just myself and sibling to inherit/sift through the mountains of paperwork). 

I've put an application in to see his will on the probate search, but know for a fact everything in it will have gone to my grandma. From the probate search I can see the estate was valued below £40,000.

The government website says:

Where the first of the couple died before 6 April 2017 their estate would not have used any of the RNRB as it was not available. So 100% of the RNRB will be available for transfer unless their estate was worth more than £2 million and the RNRB is tapered away.

And later:

the person died before 6 April 2017 the unused RNRB and total available RNRB are both deemed to be £100,000 so the unused percentage is 100%.

Am I right in thinking that means it would be considered £100,000 to be transferred to her allowance?

AND... if I *am* right, does that mean we'd just have to do IHT205 and we didn't need to wait 4 months for Natwest (don't ask, absolutely useless) to provide the full accounts so we could work out who had been gifted what...? 

RociCap

Another question, while I'm at it seeing as this is the most help I've had in 4 months! (Very grateful to you all - thank you!)

Assuming we can just do the IHT217 form to transfer (which is the spouse died after 1974 and didn't use any of their NRB - I think we can as spouse died in 1983, as per the info above no RNRB was used as it wasn't available and estate definitely wasn't worth more than £2m)... what do I do if we don't know answers to some of the questions?

Rhere are questions about the spouse who died first (i.e. my grandad) like...: Were either agricultural and/or business relief deducted either from their estate or from any gifts they made during their lifetime? and Did they make any gifts or other transfers during the 7 years before they died that were not exempt from Inheritance Tax? ... how the bloody hell would we find that out?! If you answer yes to any of them you can't use that form anymore and it says you've gotta do the full IHT400 shenanigans.

I assume it won't say on his will and he's been dead so long and there's nobody left alive to know. I wouldn't have *thought* any of those applied, but I don't know whether that means:

1. "tick no as you don't know otherwise"

OR

2. "tick yes to these questions just in case and go through the longer forms, even though you still won't know the answers to those questions in the longer forms, so the only further information HMRC are gaining from you is a very detailed list of gifts made by the most recently deceased spouse which - given that the transferrable NRB is 100%, and therefore valid and no IHT will need to be paid, is pointless anyway"...

getmore4less

If the total is under £325k(including all gifts in 7 years)   then there is no need to over complicate.

If a bit over  list the gifts  knock of the £3k a year and see where you are then.
(remember you can carry over any unused £3k for 1 year)

if there is signs that the regular gifts for Xmas B'day were covered by income you can probably leave them out as well 

As most of the estate is cash there is less chance of any questions from HMRC over value of things which can happen when close to the NRB exemptions

AS you also have transferable NRB and up to £350k(£175k for each of them) of RNRB  depending on the house value there is going to be no IHT anyway.

IF you can get it under £325k  I would go with that and a IHT205 just add a note to box 13 additional information.

Note: Should the estate have gone over 325k you would be claiming transferable nill rate band and also have residential nil rate band as a qualifying house was sold 2020 for £xxxxx  to cover care.

HMRC don't like creating work and unless they think you are hiding a few £100k there is nothing in this estate for them

edit to add

Once you do need to go to IHT400....  it is a lot less complicated than it looks, most of the supplements can be ignored for many estates and it is just more detail on the ones you need to use. 

Keep_pedalling

Don’t to forget to subtract funeral costs from the estate, which could well bring the total below the NRB.

Spousal exemption for IHT was only introduced in Dec 1974 and as your grandfather died before then it will be difficult to show any transferable NRB if you don’t have any records. The NRB was only around £15k then Anything he left to your grandmother would have used up some of that exemption so if probate was not applied for, which is often the case with a first death,  then it is going to be a difficult task to come up with the actual transferable amount, so it will be easier to use her RNRD exemption if you actually need it.