Inheritance tax: gift vs expenses?

rte299

Hopefully I've misunderstood something and this has a simple answer...

When calculating the value of an estate for inheritance tax purposes, how is a gift distinguished from expense repayment? 

Example scenario: I pay for a holiday (flights, accommodation, few meals etc) and my mum then transfers me £500 for her half of that. My mum pays this out of income and her estate would be over the IHT threshold if she were to pass away in the next 7 years.

I understand she can give £250 to me or £3000 total p/a tax-free but I’d just like to know how it practically works and how anyone going through bank statements would know this is a repayment for something rather than a gift? This scenario may happen several times p/a with smaller amounts (e.g. for petrol) between us children but could feasibly add up past £3000 total.

Should we each be keeping receipts of all transfers after the £250 threshold each year?!

Keep_pedalling

Reimbursing you for thing you have paid for her her are not gifts, just normal expenses.

There is no limit on how much people can gift, and tax will only come into the equation if they do within 7 years of the gift, so if your mother’s estate is in IHT territory then it would be better to make one off large gifts them just drip feeding the annual allowances. She should keep a record of all not exempt gifts to make life easy for her executor.

If gifting from excess income it becomes more complex as she then records of both expenditure as well as the gifts.

Have you taking into account all the available IHT exemptions including the  Residential nil rate band, and transferable allowances if she is a widow? So, what is her net worth and marital status? If she owns a home what is its approximate value?

One more question, has she put lasting powers of attorney in place?