The 7 year gifting rule and IHT allowance limit.

kantblue

Hi there can anyone advise me, sorry if I'm not explaining this well but I'm thinking of doing probate myself.

I keep reading about the 7 year rule for gifts - am I correct in saying that provided the value of the deceased estate is not over the IHT threshold when the value of the gifts given is added to this estate there is no tax to pay?

As an example: If the deceased estate was valued at £300,000 but they had gifted £10,000 over the previous year there would not be any IHT to pay as it was still under the £325,000 threshold for an individual.
However if the estate was over the £325,000 threshold there would be 40% tax to pay on £7000 (£10,000 - £3000 tax free allowance)?

If the IHT threshold is £650,000 does the 7 year rule apply to this amount or is it always to £325,000?

Cheers

Keep_pedalling

The 7 year rule applies to the gifts it does not affect the allowances, so the estate would only pay IHT if it, including gifts, exceeds the total allowances for the deceased. This could be up to £1M for a widowed spouse who has owned their own home, as there are 2 residential NRBs that could also be claimed. 

getmore4less

but they had gifted £10,000 over the previous year 

You don't count any exempt gifts for each year before adding up the PETs

Lifetime transfers that could impact IHT are known as Potentially Exempt Transfers

There are multiple exemptions to consider.

If the £10k is multiple people multiple years it could all be exempt

kantblue

Hi All - thanks for the replies - the information is most helpful. I was struggling to get 7 years of bank statements but I have got this sorted now - there are some years where the total gifted was under the £3000 limit for gifting.

getmoreforless
When you say "You don't count any exempt gifts for each year before adding up the PETs" am I right in saying I don't have to count these on the form asking for PET information?

Should I still apply for the Residential NRBs even if the total value of the estate including gifts is nowhere near the £650,000 allowance for a married couple?

kantblue

Keep_pedalling

kantblue said:

Hi All - thanks for the replies - the information is most helpful. I was struggling to get 7 years of bank statements but I have got this sorted now - there are some years where the total gifted was under the £3000 limit for gifting.

getmoreforless
When you say "You don't count any exempt gifts for each year before adding up the PETs" am I right in saying I don't have to count these on the form asking for PET information?

Should I still apply for the Residential NRBs even if the total value of the estate including gifts is nowhere near the £650,000 allowance for a married couple?

kantblue

You don’t need to record gifts for years where the annual allowance was not exceeded.

No point in complicating the return by claiming an exemption you can’t actually use.

kantblue

Thanks for the replies - I'm about the start the process following the helpful guides on this forum and the advice given here - however I got stuck straight away as I can't work out which IHT form needs filling in first before applying for probate.

The guide on this forum says: "The first step in applying for the ‘grant’ is to submit a form to HMRC to see if the estate is liable for inheritance tax (IHT). If it's below the IHT threshold (£325,000), you can fill out the IHT205 forms online or use form IHT205.  To do this, you'll need to work out how much the estate is worth (see point 8).

If it's above the IHT threshold (£325,000), you can fill out form IHT400."

The total value of the estate is around £350,000 which in theory means there is tax to pay, however I can use my mums unused allowance to bring the threshold to £650,000 so I looked at IHT402 but I'm not sure whether to fill this in before the other forms or not or even whether its the correct form.

Ultimately I know there will be no IHT to pay but its not clear which form(s) I need to fill in or if there is a specific order to do this?

Unfortunately most of the advice on other sites just says fill in the appropriate HMRC tax forms without specifying what they are.

So my question is: which IHT forms do I go for in these circumstances? Any advice would be most helpful - its frustrating because I have gathered all of the financial information I need to do this myself but I can't work out which forms to even start with. That £7000 quote for doing it is starting to look quite tempting but its such a simple estate and I have the time to do this.

kantblue

ljayljay

kantblue said:

Thanks for the replies - I'm about the start the process following the helpful guides on this forum and the advice given here - however I got stuck straight away as I can't work out which IHT form needs filling in first before applying for probate.

The guide on this forum says: "The first step in applying for the ‘grant’ is to submit a form to HMRC to see if the estate is liable for inheritance tax (IHT). If it's below the IHT threshold (£325,000), you can fill out the IHT205 forms online or use form IHT205.  To do this, you'll need to work out how much the estate is worth (see point 8).

If it's above the IHT threshold (£325,000), you can fill out form IHT400."

The total value of the estate is around £350,000 which in theory means there is tax to pay, however I can use my mums unused allowance to bring the threshold to £650,000 so I looked at IHT402 but I'm not sure whether to fill this in before the other forms or not or even whether its the correct form.

Ultimately I know there will be no IHT to pay but its not clear which form(s) I need to fill in or if there is a specific order to do this?

Unfortunately most of the advice on other sites just says fill in the appropriate HMRC tax forms without specifying what they are.

So my question is: which IHT forms do I go for in these circumstances? Any advice would be most helpful - its frustrating because I have gathered all of the financial information I need to do this myself but I can't work out which forms to even start with. That £7000 quote for doing it is starting to look quite tempting but its such a simple estate and I have the time to do this.

kantblue

Your question is very similar to what I posted a few days ago in respect of estates over £325K but below £650K with no IHT payable - see here

https://forums.moneysavingexpert.com/discussion/6330230/probate-iht-order-of-process-where-no-iht-payable#latest

So if applying online & claiming the additional NRB for earlier death of spouse, I believe you complete IHT205 with IHT217 & then you can apply for Probate. I will be doing this shortly but just waiting for house valuation first. I believe the IHT402 is for claiming the additional NRB when it only reduces IHT. I have had a brief look at the IHT205/217 & they look fairly straightforward but I will post an update when I complete later in the week

ljayljay

ljayljay said:

I believe the IHT402 is for claiming the additional NRB when it only reduces IHT.

Actually this is not quite correct IHT402 is required if some of the exemption has been used as explained here...

However, if part of the nil rate band was unused on the earlier death, such that the full amount is not available on the second death, forms IHT402 should be used instead (and form IHT400 completed instead of form IHT205).

Furthermore, my advice is for process up to 31.12.21. Looks like it is different again from 01.01.22

kantblue

Hi All

Thanks for the replies, I should have said earlier that my mother passed away in 2019.

However my father passed away this year on the 16th January 2022 and many of the forms including IHT205 say in the first paragraphs 'Do Not use if the death occurred after 1st January 2022'.

I'm really struggling to find the correct procedure after the 1st January 2022 - its obvious that many of the advice sites have outdated information - even HMRC Probate service said I needed forms which clearly state not to be used if the death occurred after January 1st 2022. I'm starting to wonder if the tax office hasn't updated the forms in a timely manner, but surely if that was the case there would have been a bit of a stink about it?

I'm going to call HMRC to clarify tomorrow but can anyone confirm the correct process from 1 Jan 2022. In the news about the changes the suggestion was that IHT and Probate would be rolled into 1 or 2 simple forms but I'm definately not seeing that!!

kantblue

ljayljay

In that case I believe the process has been made easier as you don't need to complete any IHT forms.

As follows -

If there’s no Inheritance Tax to pay and the person died on or after 1 January 2022

You’ll need to report estimates of the estate’s value as part of your probate application. You do not need to also report it to HMRC.

You first need to estimate the estate’s value for Inheritance Tax. Then use that estimate to work out the gross and net values for probate.

From what I have read you can then declare the value of the estate & apply the transferable NRB directly onto the Probate application, thus eliminating the requirement to complete separate IHT forms for HMRC. I imagine it will become a lot clearer when going through the probate form. You can see this by looking at the hardcopy on the HMRC site & follow through from Qu 7 for excepted estates when IHT not payable. Presumably done to lessen the paperwork.

https://www.gov.uk/government/publications/form-pa1p-apply-for-probate-the-deceased-had-a-will

getmore4less

Standard practice was use 205 until it tells you to use the 400 family of forms.