Inheiritance tax and gifts made by parents

TwoGuitars

I am a carer for my elderly parents and receive carers allowance at the moment.  They also give me money which amounts to more than the £3000 pa allowed under inheiritance tax.  When they pass away there shouldn't be any inheiritance tax to pay, but how would the tax office know that they have given me this money?  When a solicitor is carrying out the probate do you submit copies of bank statements for the past seven years?  Just wondering how this works and whether they should stop giving me money.  Some of it is birthday and Christmas gifts.

p00hsticks

If you have to apply for probate (i.e.if your parents estate contains property, stocks & shares or savings over the limit specified by the particular financial institution for release of the funds) then I believe part of the probate process requires the executor to say what gifts the deceased has given within the last seven years. 

It would be helpful to whoever will be handling the estate for your parents to keep a record of what they are gifting and when 

Keep_pedalling

The executor need to declare the non exempt gifts on the IHT return (if one is requires) and the have to be included in gross and net values in inheritance tax on the probate forms (even if no IHT is required). 

Gifting never creates a higher tax IHT liability so that is not a reason to stop gifting is you can afford it. You parents net worth would need to be over £1M before there would be any IHT liability. 

Applying for probate is not horribly complicated so there is usually no need to employ a solicitor to do it, that just cost money and usually takes longer.

Do your parents have wills in place? Have they put lasting powers of attorney in place?

TwoGuitars

Thank you both, for your help. The assets wouldn't incur IHT but parents can only gift £3000 per year.  We have gone over this.  I would be the executor, not sure if I would use a solicitor for probate yet.  Parents have wills in place and we have POA set up.  I will be the sole beneficiary.  I am just wondering, as I have both parents who gifted around £6000 last year, does this mean that they can gift £3000 each?  If so, this might not be an issue.

Marcon

TwoGuitars said:

Thank you both, for your help. The assets wouldn't incur IHT but parents can only gift £3000 per year.  We have gone over this.  I would be the executor, not sure if I would use a solicitor for probate yet.  Parents have wills in place and we have POA set up.  I will be the sole beneficiary.  I am just wondering, as I have both parents who gifted around £6000 last year, does this mean that they can gift £3000 each?  If so, this might not be an issue.

They can gift any amount they like/can afford - there might be a tax liability if they die within 7 years of making the gift, but I wonder if these could be classed as 'gifts out of income', which would mean they don't count? See https://www.gov.uk/inheritance-tax/gifts

Yes, it's £3,000 each, so £6,000 for the pair of them.

Keep_pedalling

Marcon said:

TwoGuitars said:

Thank you both, for your help. The assets wouldn't incur IHT but parents can only gift £3000 per year.  We have gone over this.  I would be the executor, not sure if I would use a solicitor for probate yet.  Parents have wills in place and we have POA set up.  I will be the sole beneficiary.  I am just wondering, as I have both parents who gifted around £6000 last year, does this mean that they can gift £3000 each?  If so, this might not be an issue.

They can gift any amount they like/can afford - there might be a tax liability if they die within 7 years of making the gift, but I wonder if these could be classed as 'gifts out of income', which would mean they don't count? See https://www.gov.uk/inheritance-tax/gifts

Yes, it's £3,000 each, so £6,000 for the pair of them.

If as the OP has said their parents estate won’t be subject to IHT the only way gifting could lead to a tax liability is if either of then gifted more than their NRB (£325k). Using the gifts from excess income is not worth it here as there is no IHT liability anyway. 

As Marcon has said, the £3,000 is an exemption not a limit and yes each parent has that £3,000 exemption. If they give more than that all you need to do is keep records of those gifts for 7 years after which time they also become exempt. 

TwoGuitars

Thank you all, that's really useful.  I will have to start making a record of monies I think, so I am prepared.

FlorayG

When my dad was alive he used to give me money (he had more than he needed by a long way!)
With every cash gift he would give me a very simple dated letter saying 'this is within the £3,000 limit for 19XX year' or 'This is beyond the £3000 limit which has been used this year' which made things very simple for me after he died.
Obviously you have to keep all the letters safely!

Lilio8

Keep_pedalling said:

The executor need to declare the non exempt gifts on the IHT return (if one is requires) and the have to be included in gross and net values in inheritance tax on the probate forms (even if no IHT is required). 

Gifting never creates a higher tax IHT liability so that is not a reason to stop gifting is you can afford it. You parents net worth would need to be over £1M before there would be any IHT liability. 

Applying for probate is not horribly complicated so there is usually no need to employ a solicitor to do it, that just cost money and usually takes longer.

Do your parents have wills in place? Have they put lasting powers of attorney in place?

Hello.

I'm confused about  the 'gifting' part.  What about gifts that are things (not money), e.g. a car, a bicycle, a ring, a silver coin, a painting, etc. (values less than £5,000)? Are these liable for IHT?

Keep_pedalling

Lilio8 said:

Keep_pedalling said:

The executor need to declare the non exempt gifts on the IHT return (if one is requires) and the have to be included in gross and net values in inheritance tax on the probate forms (even if no IHT is required). 

Gifting never creates a higher tax IHT liability so that is not a reason to stop gifting is you can afford it. You parents net worth would need to be over £1M before there would be any IHT liability. 

Applying for probate is not horribly complicated so there is usually no need to employ a solicitor to do it, that just cost money and usually takes longer.

Do your parents have wills in place? Have they put lasting powers of attorney in place?

Hello.

I'm confused about  the 'gifting' part.  What about gifts that are things (not money), e.g. a car, a bicycle, a ring, a silver coin, a painting, etc. (values less than £5,000)? Are these liable for IHT?

Gifted goods in kind are still gifts so count towards IHT.

Marcon

Keep_pedalling said:

Marcon said:

TwoGuitars said:

Thank you both, for your help. The assets wouldn't incur IHT but parents can only gift £3000 per year.  We have gone over this.  I would be the executor, not sure if I would use a solicitor for probate yet.  Parents have wills in place and we have POA set up.  I will be the sole beneficiary.  I am just wondering, as I have both parents who gifted around £6000 last year, does this mean that they can gift £3000 each?  If so, this might not be an issue.

They can gift any amount they like/can afford - there might be a tax liability if they die within 7 years of making the gift, but I wonder if these could be classed as 'gifts out of income', which would mean they don't count? See https://www.gov.uk/inheritance-tax/gifts

Yes, it's £3,000 each, so £6,000 for the pair of them.

If as the OP has said their parents estate won’t be subject to IHT the only way gifting could lead to a tax liability is if either of then gifted more than their NRB (£325k). Using the gifts from excess income is not worth it here as there is no IHT liability anyway. 

As Marcon has said, the £3,000 is an exemption not a limit and yes each parent has that £3,000 exemption. If they give more than that all you need to do is keep records of those gifts for 7 years after which time they also become exempt. 

No - they said it 'shouldn't be subject to IHT', hence my caveat (not clear from OP's question if it is the giving away of funds which will keep the estate below the IHT threshold at death).