Inheritance Tax due on 'gifts in kind'?

Molvik

I am trying to get my head around potential inheritance tax liabilities and there's a blindspot that I cannot find any clear answers for, that of 'gifts in kind'. So I thought I'd check if anyone had clear experience of this before seeking more detailed advice, as it seems to be a simple question.

I understand the various thresholds, which is all very clear when talking about cash or specific assets i.e. property or shares. However, is the same true for what I would call 'gifts in kind', i.e. in the following situations, were the 'giver' to die within 7 years, would inheritance tax be liable as a 'gift' in all, or any of these scenarios:

- Paying £12,000 for expensive holiday for two people not including the 'giver'
- Paying £10,000 for a holiday for 6 people including the 'giver'
- Paying a £7,000 bill for a new bathroom at a family member's home
- Paying a series of smaller bills in the £100s but totalling £10,000 for home renovations for a family member 
- Paying £4,000 for private medical procedure for a family member

In all these cases the 'giver' is paying a supplier (travel agent, bathroom fitter, hospital etc) directly. And of course this all assumes the estate is beyond the IHT threshold of £325,000.

These are illustrative semi-fictional examples but any clear sense of whether IHT would be due on these as 'gifts' would be very helpful to put some minds at rest and ensure the law is adhered to! My working assumption is they would be liable btw. 

Keep_pedalling

Whether you give someone cash or purchase something for them makes no difference it is a gift that stays within your estate for 7 years from the date you made the gift or paid for the holiday, the bathroom or private medical care. 

Jeremy535897

Molvik said:

I am trying to get my head around potential inheritance tax liabilities and there's a blindspot that I cannot find any clear answers for, that of 'gifts in kind'. So I thought I'd check if anyone had clear experience of this before seeking more detailed advice, as it seems to be a simple question.

I understand the various thresholds, which is all very clear when talking about cash or specific assets i.e. property or shares. However, is the same true for what I would call 'gifts in kind', i.e. in the following situations, were the 'giver' to die within 7 years, would inheritance tax be liable as a 'gift' in all, or any of these scenarios:

- Paying £12,000 for expensive holiday for two people not including the 'giver'
- Paying £10,000 for a holiday for 6 people including the 'giver'
- Paying a £7,000 bill for a new bathroom at a family member's home
- Paying a series of smaller bills in the £100s but totalling £10,000 for home renovations for a family member 
- Paying £4,000 for private medical procedure for a family member

In all these cases the 'giver' is paying a supplier (travel agent, bathroom fitter, hospital etc) directly. And of course this all assumes the estate is beyond the IHT threshold of £325,000.

These are illustrative semi-fictional examples but any clear sense of whether IHT would be due on these as 'gifts' would be very helpful to put some minds at rest and ensure the law is adhered to! My working assumption is they would be liable btw. 

The law catches a transfer of value that diminishes your estate, so whether you make an outright gift or paying a supplier, you have made a transfer of value.

Molvik

OK great, as expected - thanks both.

Malthusian

1, 3, 4 and 5 are transfers of value and could be added back into the estate if you don't live long enough.

2 potentially isn't as you are coming along on the holiday. My understanding is that if you, e.g., book a villa for the six of you, that isn't a transfer of value (not even the 5/6ths of the accommodation they will be using). On the other hand if you sent them cash to pay the travel company with, that would clearly be a transfer of value.

Nearlyold

In some circumstances regular gifts may be IHT Exempt if they are paid out of surplus income
see

bn_Gifts-out-of-income.pdf (mercerhole.co.uk)

[Deleted User]

Nearlyold said:

In some circumstances regular gifts may be IHT Exempt if they are paid out of surplus income
see

bn_Gifts-out-of-income.pdf (mercerhole.co.uk)

The important word is ‘regular’ e.g. birthdays, Christmas, anniversaries- whatever! Not one-off gifts as indicated by the op. 

Nearlyold

[Deleted User] said:

Nearlyold said:

In some circumstances regular gifts may be IHT Exempt if they are paid out of surplus income
see

bn_Gifts-out-of-income.pdf (mercerhole.co.uk)

The important word is ‘regular’ e.g. birthdays, Christmas, anniversaries- whatever! Not one-off gifts as indicated by the op. 

I wasn't aware I was suggesting that the examples of gift expenditure given by the OP met the test for habitual/usual/normal expenditure to qualify as a Gift Out of Surplus Income - I was simply pointing towards the fact that in certain circumstances regular Gifts out of Surplus Income could be exempt from IHT.

Incidentally there is no absolute requirement for such Gifts to be at fixed regular intervals (though obviously that would perhaps make justification easier)

[Deleted User]

Nearlyold said:

purdyoaten2 said:

Nearlyold said:

In some circumstances regular gifts may be IHT Exempt if they are paid out of surplus income
see

bn_Gifts-out-of-income.pdf (mercerhole.co.uk)

The important word is ‘regular’ e.g. birthdays, Christmas, anniversaries- whatever! Not one-off gifts as indicated by the op. 

I wasn't aware I was suggesting that the examples of gift expenditure given by the OP met the test for habitual/usual/normal expenditure to qualify as a Gift Out of Surplus Income - I was simply pointing towards the fact that in certain circumstances regular Gifts out of Surplus Income could be exempt from IHT.

Incidentally there is no absolute requirement for such Gifts to be at fixed regular intervals (though obviously that would perhaps make justification easier)

Nor did I suggest that you were! I simply pointed out that the gifts mentioned by the op did not appear to be regular and would fall foul of that exemption. I once came across one client who tried to persuade HMRC that regular payments by his mother towards a house build were exempt. You can guess the outcome.

From HMRC:

If you make regular payments

You can make regular payments to help with another person’s living costs. There’s no limit to how much you can give tax free, as long as:

• you can afford the payments after meeting your usual living costs
• you pay from your regular monthly income