Inheritance Tax /Gift tax

Laurieo

My friend sadly passed away and I will be executer of his estate.
He had made a Will leaving his house to his children.
I have discovered that in the weeks leading up to his death he made payments to his children's bank accounts .This was a surprise to the recipient's.
As they would have to pay gift tax on this is it possible that they return the monies to his account ?.
I don't think his house and savings will reach the £500.0000 IT limit .

Jeremy535897

There will be no tax on the gifts to the children unless they exceeded his nil rate band. They will be aggregated with the value of the estate to calculate the tax due on the estate, but unless these gifts, the house and his other assets exceed the nil rate band, there will be no tax payable by the estate either.

Albermarle

As they would have to pay gift tax on this

Not sure where you got this idea from? 

claire111

I believe also (**but check this for yourself**) that if the gifts were made from your friends 'income' and not from capital and the making of the gifts didn't affect his usual lifestyle that they can be ignored. If the estate is over £500k you would be wise to take advice.

Laurieo

Sorry £500.000 IT limit 

Keep_pedalling

You need to include those gifts in his estate, no need to claw them back. If that takes his estate into IHT territory then you pay the tax from the remainder estate before you distribute the estate.

[Deleted User]

claire111 said:

I believe also (**but check this for yourself**) that if the gifts were made from your friends 'income' and not from capital and the making of the gifts didn't affect his usual lifestyle that they can be ignored. If the estate is over £500k you would be wise to take advice.

Such gifts should be ‘regular’ and so I doubt they would qualify as exempt in this case.

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

These are known as ‘normal expenditure out of income’. They include:

• paying rent for your child
• paying into a savings account for a child under 18
• giving financial support to an elderly relative

Keep_pedalling

Laurieo said:

Sorry £500.000 IT limit.

The £500k limit only applies if his house is worth more than £175k as that will allow you to claim the full RNRB. If he was a widow then there are transferable allowances that could take his exemptions to £1M

claire111 said:

I believe also (**but check this for yourself**) that if the gifts were made from your friends 'income' and not from capital and the making of the gifts didn't affect his usual lifestyle that they can be ignored. If the estate is over £500k you would be wise to take advice.

It is highly unlikely that large gifts given just before death would be from excess income, but even if that was the case you can’t simply ignore them the executor has to show it was actually excess income and provide details of the testators income.

theoretica

Just to confirm everyone involved is/was in the UK?  As I believe some other countries do have gift tax.

macman

OP, there is no 'gift tax' in the UK. The only tax relevant here is IHT (not IT), which will only apply if his estate exceeds the nil rate band. Does your estimate of less than £500k exclude or include these gifts? How much were they?
The nil rate band may be as high as £1m if he can use a deceased wife's nil rate band as well; we have no idea, because you haven't given us nearly enough info.
I suggest you do some research on the IHT rules in order to discharge your duties as his executor.

Laurieo

Thanks for replies.
There is no deceased wife's nil band rate to use . 
The gifts were £20k. taken from his capital.
My estimate of the estate including the gifts is £505K
Sorry for the wrong terminology 'gift tax ' but I was under the impression that lump sums given as presents were subject to a seven year reducing  IHT scale ,so the sums given would be subject to this whereas if they were in his estate they would not ?.
Yes I will be getting professional help with this as it may involve the property being sold .