Gifts during lifetime for probate

Skint_yet_Again

I am trying to work out what gifts need to be included in probate calculations. Guidance seems to suggest ….”Birthday or Christmas gifts you give from your regular income are exempt from Inheritance Tax”.

Does this just apply to small gifts under £250? Or does it also apply to gifts over £3000 if paid from regular pension income? 

Grateful for any help received 

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

user1977

My reading is it's unlimited, provided you're not depleting your capital.

Not sure it literally needs to be "birthdays and Christmas" only (the latter would seem discriminatory for a start!).

NorthYorkie

The correct phrase is "normal expenditure out of income" i.e. there needs to be a pattern of regular, habitual gifts made out of the individual's surplus income (and therefore not out of capital).

Skint_yet_Again

Thanks user1977 and NorthYorkie

This is lifted direct from gov.uk so no change of wording. It is specific about the gifts being at Christmas and birthdays

Small gift allowance

You can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.

Birthday or Christmas gifts you give from your regular income are exempt from Inheritance Tax.

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

Edit to add the money came from monthly pensions. No other income into the account 

probate_slave

I'm afraid your gov.uk page makes an absolute howler by placing Christmas & birthday presents under the small gifts exemption. They properly belong in the Normal expenditure section a couple of paragraphs lower, as NorthYorkie explains. This is much clearer in the IHT400 Notes at page 77.

If you want your executor to eventually apply the Normal expenditure exemption, have a look at the last page of IHT403 to see how much additional detail needs to be given to satisfy HMRC.

user1977

Skint_yet_Again said:

This is lifted direct from gov.uk so no change of wording. It is specific about the gifts being at Christmas and birthdays

Yes, but unfortunately much of the "advice" on gov.uk pages is rather simplistic and misleading (not just on Inheritance Tax). It isn't the law (despite the actual law being elsewhere on gov.uk!).

Skint_yet_Again

Thank you both I wasn’t disagreeing. Hopefully we can include them without needing to try and claim the exemption. Your help is much appreciated 

poseidon1

As a matter of interest are your joint estate anywhere near the £1 million threshold where IHT would start to bite?

If not, do you even need to worry about the  availability of the various IHT gifts exemptions to shelter your annual gifting? Forgive me if you have already imparted your estate value in another post.

poppystar

poseidon1 said:

As a matter of interest are your joint estate anywhere near the £1 million threshold where IHT would start to bite?

If not, do you even need to worry about the  availability of the various IHT gifts exemptions to shelter your annual gifting? Forgive me if you have already imparted your estate value in another post.

But maybe OP is executor for someone who is single or childless or propertyless?.

Skint_yet_Again

Hope someone can help. I am now looking at 7 years of bank statements and there are numerous cheques of various amounts with no way of knowing what they were for / who they were paid to. 

How deeply do I have to look into this? We don’t have the cheque book. Do I have to contact the bank and ask if they can provide the payee? Or should I just add them all in as we are still likely to be under the NRB + transferable NRB from spouse? 

jmr95

I am unsure if this helps or does not help, but there is only so much you can know as an executor.

If you are still within limits for IHT and you can show you did your due dilligence, this should be fine. HMRC are looking to collect tax from estates that should pay tax..and my recent experience did not involve being asked for a detailed line by line justification - the estate was significantly under the 500k threshold I had due to RNRB so I had plenty of headroom.

I appreciate this is not an 'official' answer but personally I would consider the rest of the estate first, factor in anything like NRB, RNRB etc, and then make the call - if you're significantly below thresholds and the unknown payments (which could be for anything from double glazing to a lavish meal...) still keep you under, chances are it's not going to be a huge issue.

IF however you are at/over the threshold and you need to know more, then I would look further purely to keep the estate as low as you can.

When I submitted IHT forms, their reply even noted that I did not need to update them with any additional payments to the estate unless it actually made a difference to the IHT position.

This certainly isn't 'advice' but just my 2 cents/what I would do based on recent experience. If you are in doubt or worried just give them a call - once you're past the 30 minute queue they are really helpful.