IHT403 (Gifts) - declaration of £250 gifts over and above £3k annual allowance?

itm2

I'm completing IHT403 (Gifts and other transfers of value). In the last few years my late mother made a series of gifts (usually cheques) to her children and grandchildren. Most of these gifts were £200-250 each, but cumulatively amounted to >£3k in the year in which they were given. The instructions at the top of the form say "Do not tell us about any gifts where the total value was £3,000 or less in any tax year, small amounts of £250 or less or if the gifts were made to a spouse or civil partner.". Should I assume that I should still declare those £200/250 gifts which were in excess of the £3k annual gift allowance?

tightauldgit

I believe the rule is that you can give as many gifts of less than £250 as you want without it needing to be declared as long as you didn't exceed the £250 to any one person in any one tax year. The £3000 allowance is additional to that, so no provided they meet the criteria you don't need to declare them.

So for example if she had 20 kids and grandkids and gave them all £250 each year on their birthday and nothing else then you'd be fine. But if she gave £150 at birthday and £150 at Xmas then that would be over the limit and you'd have to include that £300 as part of the £3000. 

itm2

The £200/250 gifts were all made to the same two children, and between them would have collectively exceeded the annual £3k allowance in some years.
So for example if child A and child B each received 10 gifts of £200 during the year (i.e. £2,000 each, £4,000 in total), then would I need to list 5 of these gifts on form IHT403, even though each gift was only £200 in value?

Keep_pedalling

Technically that is correct, although personally I would simplify it and lump the 5 together, HMRC are not going to challenge it.

wolvoman

The lesson here - don’t leave a paper trail.

Keep_pedalling

wolvoman said:

The lesson here - don’t leave a paper trail.

If there is any lesson to be learned here then it is not that. Leaving your executors in the dark just makes life very hard for them. 

tightauldgit

itm2 said:

The £200/250 gifts were all made to the same two children, and between them would have collectively exceeded the annual £3k allowance in some years.
So for example if child A and child B each received 10 gifts of £200 during the year (i.e. £2,000 each, £4,000 in total), then would I need to list 5 of these gifts on form IHT403, even though each gift was only £200 in value?

No, my understanding is that if they go over the limit then you need to declare them all. Since they exceeded the £250 limit in a year they are not exempt and since they exceeded £4000 in total for the year they would not be exempt either - so you would declare £4000 of gifts. 

I don't think you would need to necessarily list them all separately but just list the total for the tax year - so Child 1 £2000 and Child 2 £2000

Disclaimer: I am not an IHT expert by profession. 

Keep_pedalling

tightauldgit said:

itm2 said:

The £200/250 gifts were all made to the same two children, and between them would have collectively exceeded the annual £3k allowance in some years.
So for example if child A and child B each received 10 gifts of £200 during the year (i.e. £2,000 each, £4,000 in total), then would I need to list 5 of these gifts on form IHT403, even though each gift was only £200 in value?

No, my understanding is that if they go over the limit then you need to declare them all. Since they exceeded the £250 limit in a year they are not exempt and since they exceeded £4000 in total for the year they would not be exempt either - so you would declare £4000 of gifts. 

I don't think you would need to necessarily list them all separately but just list the total for the tax year - so Child 1 £2000 and Child 2 £2000

Disclaimer: I am not an IHT expert by profession. 

Not correct, going over your annual exemption allowance does not mean you loose it, only £1000 needs to be declared.

Frogletina

As these gifts were made regularly to the same children, did your mother have enough income in the years that they were gifted so that they could be declared as regular gifts out of income and not capital?

Regular gifts out of income are not subject to the £3000 a year limit.

itm2

Frogletina said:

As these gifts were made regularly to the same children, did your mother have enough income in the years that they were gifted so that they could be declared as regular gifts out of income and not capital?

Regular gifts out of income are not subject to the £3000 a year limit.

Yes she did, but they may not have been considered "regular" - i.e. the amounts were not always the same, and there were some months where they were not given at all.

Keep_pedalling

Frogletina said:

As these gifts were made regularly to the same children, did your mother have enough income in the years that they were gifted so that they could be declared as regular gifts out of income and not capital?

Regular gifts out of income are not subject to the £3000 a year limit.

It is not simply a matter of gifts from income it has to be excess income, and to show that the OP is going to have to provide detailed accounts of income and expenditure for all the years she did this. 

Making gifts from excess income it reduce your IHT liabilities is normally something that is planned in advance, with accounts kept to assist your executors. Applying it retrospectively is difficult and fraught dangers. I certainly would not be attempting it to save £250 on a large estate.