My understanding of IHT, gifts and when a person dies penniless

UnsureAboutthis

Reading various websites and Google AI today.
I've come to the following conclusion.

If you gift money/assets (more than the IHT threshold) and then live
in a rented place via the hand-to-mouth route and die within the IHT 
year tax rule. Any IHT that may have been due is written off.

EG: A person gifts 3 million pounds of assets to family and friends. Then
The person dies the next day. 

My understanding is. Instead of the estate being liable for at least 

800k - the tax man will get nothing.

Am I correct as things stand?

Keep_pedalling

No you are not correct, for IHT purposes the estate valuation is still £3M and those receiving the gifts will have to pay the tax.

El_Torro

Look up the 7 year rule, this is relevant for what you're looking into. Basically your plan only works if the person lives for 7 years after giving their money away. 

If the person needs to live in a care home after giving their money away this also complicates things as the council may not be willing to fund it, due to depravation of assets.

Notepad_Phil

UnsureAboutthis said:

Reading various websites and Google AI today.
I've come to the following conclusion.
....
Am I correct as things stand?

Not sure what websites you've looked at, but as per the posters above, no you're definitely not correct. Did you really think that the government would allow such a situation to occur?

Bookworm225

UnsureAboutthis said:

800k - the tax man will get nothing.

Am I correct as things stand?

no you are not, in the scenario you outline the recipient is liable for the IHT on the money they received 

try reading again?
How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts - GOV.UK

UnsureAboutthis

Ok

I'm not sure if you have understood me.

Let's say a person gave away everything the days before he/she passed away - IE everything as in the  3million.
The above are gifts to family and friends. The person is then left penniless.

So where will the taxman collect the tax from as the estate value would be one big zero pence?
I'm sure the taxman won't chase those that received the gift/monet etc.

Sea_Shell

UnsureAboutthis said:

Ok

I'm not sure if you have understood me.

Let's say a person gave away everything the days before he/she passed away - IE everything as in the  3million.
The above are gifts to family and friends. The person is then left penniless.

So where will the taxman collect the tax from as the estate value would be one big zero pence?
I'm sure the taxman won't chase those that received the gift/monet etc.

Oh yes they will!!!   To the ends of the earth, probably.

If they've spent it all too, they could lose their home, be made bankrupt or potentially lose their liberty*


*If tax evasion / fraud was in play

eskbanker

UnsureAboutthis said:

I'm sure the taxman won't chase those that received the gift/monet etc.

Valuable paintings in the estate too?

p00hsticks

UnsureAboutthis said:

I'm not sure if you have understood me.

We most definitely have understood you.
Gifts made within 7 years of the death are added back into the estate for IHT calculation purposes. 
If there are enough assets left in the estate to cover the IHT bill then it should be paid from the estate, but if not then HMRC will expect the beneficiaries of the gifts to foot the bill. 

If it were that easy to circumvent IHT everyone would be doing it  - it's the reason the seven year rule exists. 

UnsureAboutthis

p00hsticks said:

UnsureAboutthis said:

I'm not sure if you have understood me.

We most definitely have understood you.
Gifts made within 7 years of the death are added back into the estate for IHT calculation purposes. 
If there are enough assets left in the estate to cover the IHT bill then it should be paid from the estate, but if not then HMRC will expect the beneficiaries of the gifts to foot the bill. 

If it were that easy to circumvent IHT everyone would be doing it  - it's the reason the seven year rule exists. 

Clearly not and if you had, you would not have posted what you did.  I'm not sure what the confusion is but I'll give it another go.

I'll ask for the last time and hoping that someone can answer the question.

No one is talking about x/y/z etc but the simple scenario as per my original posts, IE.
Someone decided to give away 2/3/7/etc million away and dies within the next 2 years. The person decided
to live a simple life and their income covers the rent and the bills/food etc but no savings. So, the person dies the next day or before 7 years. If the person had assets, then I'm sure the taxman would chase/want the tax. However, no one has understood what I am saying and asking. The person died penniless and had a big, fat, zero worth of assests.

Where does the taxman receive his money from and if you still feel he will collect when the person, when he/she died had zero to their names - direct me to a HMRC link how the taxman would seek to recover money from the 1 to 100 people he gave his money away to.

Nomunnofun1

UnsureAboutthis said:

p00hsticks said:

UnsureAboutthis said:

I'm not sure if you have understood me.

We most definitely have understood you.
Gifts made within 7 years of the death are added back into the estate for IHT calculation purposes. 
If there are enough assets left in the estate to cover the IHT bill then it should be paid from the estate, but if not then HMRC will expect the beneficiaries of the gifts to foot the bill. 

If it were that easy to circumvent IHT everyone would be doing it  - it's the reason the seven year rule exists. 

Clearly not and if you had, you would not have posted what you did.  I'm not sure what the confusion is but I'll give it another go.

I'll ask for the last time and hoping that someone can answer the question.

No one is talking about x/y/z etc but the simple scenario as per my original posts, IE.
Someone decided to give away 2/3/7/etc million away and dies within the next 2 years. The person decided
to live a simple life and their income covers the rent and the bills/food etc but no savings. So, the person dies the next day or before 7 years. If the person had assets, then I'm sure the taxman would chase/want the tax. However, no one has understood what I am saying and asking. The person died penniless and had a big, fat, zero worth of assests.

Where does the taxman receive his money from and if you still feel he will collect when the person, when he/she died had zero to their names - direct me to a HMRC link how the taxman would seek to recover money from the 1 to 100 people he gave his money away to.

Does this help?

https://www.gov.uk/inheritance-tax/gifts

Specifically:

How Inheritance Tax on a gift is paid

‘Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift.’