Gifts over the Nil Rate Band

ColinGala

Hi, I am Executor for my late Dad's estate. The amount of gifts he gave away over the last 7 years exceeds the Nil Rate Band. The guidance states that IHT has to be paid by the recipient of the  gifts over the NRB threshold and not from the Estate.  Is there any way the IHT could be paid from the estate?

Keep_pedalling

The guidance is rather confusing and HMRC only care about the tax being paid. Unless there is insufficient money in the estate to meet the IHT bill then it comes from the residual estate not clawed back from the recipient of the gift.

ColinGala

Thank you very much for the swift response. There is enough money in the estate to pay but the 'bill' for the excess amount is sent directly to the recipient. I have to calculate the estate IHT bill (using the IHT400 'Calculation) form and that excludes the excess gift amount. It's the mechanism of how the estate can pay that concerns me. I can't just pay a personal tax bill from the estate to someone who is not a beneficiary of the will (or can I!)?

Keep_pedalling

ColinGala said:

Thank you very much for the swift response. There is enough money in the estate to pay but the 'bill' for the excess amount is sent directly to the recipient. I have to calculate the estate IHT bill (using the IHT400 'Calculation) form and that excludes the excess gift amount. It's the mechanism of how the estate can pay that concerns me. I can't just pay a personal tax bill from the estate to someone who is not a beneficiary of the will (or can I!)?

There will be no bill going to the recipient, you simply pay the total bill from estate funds. 

Are you aware of the taper relief rules (they also cause a lot of confusion) ?

ColinGala

Thanks again! I'll send the forms off and see what comes back. Will update you on result (although this may be some time....) Presumably if the bill is paid by the estate then this will be counted as a gift from the beneficiaries to the recipients (2 of the recipients are not beneficiaries)? Yes I think I do understand the taper relief rule - it's only applies after the NRB has been breached and then you have to wait 4 years for first discount. It doesn't apply in our case - have investigated it. If I may another question. What does grossing / interaction mean (IHT435 Box 29) - not sure what free of tax means (unless it refers to gifts to charity?)

Keep_pedalling

ColinGala said:

Thanks again! I'll send the forms off and see what comes back. Will update you on result (although this may be some time....) Presumably if the bill is paid by the estate then this will be counted as a gift from the beneficiaries to the recipients (2 of the recipients are not beneficiaries)? Yes I think I do understand the taper relief rule - it's only applies after the NRB has been breached and then you have to wait 4 years for first discount. It doesn't apply in our case - have investigated it. If I may another question. What does grossing / interaction mean (IHT435 Box 29) - not sure what free of tax means (unless it refers to gifts to charity?)

No, these don’t count as gifts from the beneficiaries. The testator made the gifts and the tax is paid by the estate before distribution to the residual beneficiaries. 

Sometimes a will leaves bequests with a clause that IHT is not to be applied to that particular gift, such as I leave Joe Blogs the sum of £1000 to be paid free of inheritance tax. This means the £400 tax that falls on that gift shifts to the residual estate.

See note 9 on page 6 of the paper version as to what grossing / interaction means.


https://assets.publishing.service.gov.uk/media/64f9a1fdfdc5d10014fce7b7/IHT435-2023.pdf

ColinGala

Thanks very much because this was causing me a lot of stress as the recipients were blaming me for having to pay the tax. But if I can pay from the estate (which is the fair thing to do) then peace will be restored, I've completed everything but my last 2 queries are 1) IHT400 Box 20 - what is the Contact's reference (I'm being really stupid but I can't find any guidance - probably because the answer is easy but I'm not 100% sure. 2) The last thing I am waiting for is confirmation from HMRC about any tax due/owed. Can I send the IHT400 forms off with an estimate for the tax and then recorrect it  later once HMRC get in touch as they seem to be taking ages. They have written to me saying the process has started and I phoned and asked them what the amount was and they told me so I'd make an informed estimate - I just don't have the paperwork from them. Am indebted to you for your help with this so will try and help someone else with Probate in return

Keep_pedalling

Contact ref can be anything you want it is just so you can see what the payment is on the bank account you ar3 using for the estate.

Yes you can use estimated figures if you are still waiting for some info.

ColinGala

Great. Will now send off the forms and move onto the next stage. Thanks again for all your help