Can a relative pay builders to avoid inheritance tax

hen77

I am having building work done and an older relative has offered to pay a significant amount towards it (more than £20k) which I would have inherited eventually, if it wasn't being given now. Can they pay this money direct to the builder by bank transfer to avoid paying inheritance tax on it (if they died within 7 years of the donation) or are there any implications for doing this ie would either the builder or I get into trouble? 

theoretica

They can pay it directly to the builder, but it is still a gift (in kind rather than in cash) being given to you - just as if they bought a car and gave that to you.  But if they do live for 7 years there will be no tax due.

hen77

theoretica said:

They can pay it directly to the builder, but it is still a gift (in kind rather than in cash) being given to you - just as if they bought a car and gave that to you.  But if they do live for 7 years there will be no tax due.

Thanks! So are all bank accounts of persons deceased audited going back 7 years and anything that has been paid for over the threshold amount investigated? I think the answer will be yes but it does seem like an awful lot of work for the tax people!

DullGreyGuy

Depends if the executors want to commit fraud or not etc

It's a gift, if they die within 7 years their estate will be considered to still have some or all of the monies when calculating IHT. Neither you nor the builder will get in trouble for you receiving a gift and using it to get some building work.

casper_gutman

Presumably this gift could also be considered deprivation of assets if the OP's relative needs long term care and is assessed for means tested support with this?

macman

hen77 said:

theoretica said:

They can pay it directly to the builder, but it is still a gift (in kind rather than in cash) being given to you - just as if they bought a car and gave that to you.  But if they do live for 7 years there will be no tax due.

Thanks! So are all bank accounts of persons deceased audited going back 7 years and anything that has been paid for over the threshold amount investigated? I think the answer will be yes but it does seem like an awful lot of work for the tax people!

Are you the executor? If so, when the time comes you will be committing tax evasion if you fail to disclose the gift when applying for probate.

hen77

macman said:

hen77 said:

theoretica said:

They can pay it directly to the builder, but it is still a gift (in kind rather than in cash) being given to you - just as if they bought a car and gave that to you.  But if they do live for 7 years there will be no tax due.

Thanks! So are all bank accounts of persons deceased audited going back 7 years and anything that has been paid for over the threshold amount investigated? I think the answer will be yes but it does seem like an awful lot of work for the tax people!

Are you the executor? If so, when the time comes you will be committing tax evasion if you fail to disclose the gift when applying for probate.

No I'm not the executor but I'm guessing from your response that the executor would somehow be able to trace that the transaction was a gift and not for the relative themselves. Ok, I think that answers my question, thanks for your response. 

hen77

DullGreyGuy said:

Depends if the executors want to commit fraud or not etc

It's a gift, if they die within 7 years their estate will be considered to still have some or all of the monies when calculating IHT. Neither you nor the builder will get in trouble for you receiving a gift and using it to get some building work.

No intention to commit fraud. So it sounds like the IHT would come from the estate and I would not be asked to pay it back myself. But in any case it makes no difference if the money is paid to me and I pay the builder, or goes directly to the builder as the executor would somehow be able to trace that the transaction was a gift and not for the relative themselves (still no idea how that would work!). Ok, I think that answers my question, thanks for your response. 

Money_Grabber13579

hen77 said:

DullGreyGuy said:

Depends if the executors want to commit fraud or not etc

It's a gift, if they die within 7 years their estate will be considered to still have some or all of the monies when calculating IHT. Neither you nor the builder will get in trouble for you receiving a gift and using it to get some building work.

No intention to commit fraud. So it sounds like the IHT would come from the estate and I would not be asked to pay it back myself. But in any case it makes no difference if the money is paid to me and I pay the builder, or goes directly to the builder as the executor would somehow be able to trace that the transaction was a gift and not for the relative themselves (still no idea how that would work!). Ok, I think that answers my question, thanks for your response. 

It’s not so much a question of whether the executor would be able to spot it - instead, they would be required to identify it and trying to hide it just makes their job so much harder.

Le_Kirk

There is an allowance (pitiful) per year that you are allowed to "gift" to anyone plus there are allowances that you can give to children and grandchildren per year and also another allowance for wedding purposes - I believe - but this is a question to ask in a money forum rather than a DIY type forum or just ask HMRC.

Rdwill

I believe you can be gifted £3k per year, so if you take the money as a 'loan' and then write the loan off at £3k per year, you should be fine. If your relative is part of a couple then you can write it off at £6k per year.

Then tax won't be due on the legitimately gifted amounts, and hopefully they will live long enough that the whole amount can be written off.