Inheritance tax on gifts made in last 7 years - money held by a parent in an informal trust

James478

My father kept hold of my rent money throughout my young adult life and gave it back to me shortly before his death to put towards my first flat deposit. As the money wasn't held in an official trust, just his bank account, I'm wondering if HMRC will still want a slice of the pie even though technically I was being gifted back my own savings.

Many thanks in advance, this forum has been so helpful getting me through this confusing period.

The_Unready

Is his estate liable for IHT, either with or without the cash gift to you?

Marcon

James478 said:

My father kept hold of my rent money throughout my young adult life and gave it back to me shortly before his death to put towards my first flat deposit. As the money wasn't held in an official trust, just his bank account, I'm wondering if HMRC will still want a slice of the pie even though technically I was being gifted back my own savings.

Many thanks in advance, this forum has been so helpful getting me through this confusing period.

The first £6,000 can be counted as a tax free gift, assuming he didn't give you any other cash gifts during the tax year in which died, or the tax year before that.

Otherwise I'm afraid that if the estate is subject to IHT, then yes, HMRC will want their slice of the pie if the cash was held in an account in your father's name, because the money technically belonged to him.

James478

It's looking like without including these monies there may not be IHT to pay, but if I do include them I will have to pay it.

When I spoke to someone on the helpline I was basically told that if I don't include the money that he was holding for me in my calculation they would take me at my word but I'm a bit sceptical.

I can get hold of 7 years of statements for proof of my payments to him so I'm wondering if I just deduct 7 years worth of rent to be on safe side?

Marcon

James478 said:

It's looking like without including these monies there may not be IHT to pay, but if I do include them I will have to pay it.

When I spoke to someone on the helpline I was basically told that if I don't include the money that he was holding for me in my calculation they would take me at my word but I'm a bit sceptical.

I can get hold of 7 years of statements for proof of my payments to him so I'm wondering if I just deduct 7 years worth of rent to be on safe side?

In the light of what you've just posted, I'd be inclined to give it a go and claim the whole lot as 'yours' - seven years of bank statements is a pretty good indication that you were making regular payments to him, and provided the amount he gave you before he died tallies (more or less) with the regular amounts/total period for which you were paying him, it might well be a runner.

Keep_pedalling

As this was rent, then it was definitely part of his estate and should be included, there is no such thing as an informal trust.

Including the gift what is the value of his estate? What was his marital status?

Alphatauri

One thing you need to think through is whether your Dad should have been paying income tax on your rent.  The rent a room scheme allows a home owner to charge rent for a room up to a set limit, above this limit it becomes taxable income. https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

The limits have increased over the years so you need to check your Dad was under the limit for each year.

Sarahspangles

Alphatauri said:

One thing you need to think through is whether your Dad should have been paying income tax on your rent.  The rent a room scheme allows a home owner to charge rent for a room up to a set limit, above this limit it becomes taxable income. https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

The limits have increased over the years so you need to check your Dad was under the limit for each year.

Does not apply to family members.

Alphatauri

Sarahspamgles - good to know

Malthusian

James478 said:

When I spoke to someone on the helpline I was basically told that if I don't include the money that he was holding for me in my calculation they would take me at my word but I'm a bit sceptical.

Me too. I would want that in writing. 
Technically speaking you were paying him rent and that was his money up until the moment he gave it to you. That's the default assumption, at least.
If he was still alive, and still had the money, would you have had any legal right to demand your rent payments back from him? If the answer is "no" the money wasn't yours - until he gave it to you.