How to show large numbers of regular gifts from income on IHT403?

Cubicsrube

Mum died in July and even though the inheritance tax calculator says there's no IHT to pay thanks to the transfer of dad's NRB and RNRB, I'm having to do IHT400 as her estate is over the 625k limit. (Initially applied for probate online without IHT400 based on guidance on .gov, but received a barely intelligible email from the probate service that seems to indicate we have to fill it out). I've got a few different questions but will try to separate them into distinct threads - hope that's correct.

My main quandary: For about a decade, mum and dad gave three grandchildren a regular monthly allowance. These were separate bank transfers to each grandchild of £150, every month. As such they add up to more than the £3000 annual gift exemption. How do I show these on the form? The way the form is set up suggests I have to itemise each transfer for each child, rather than put a total amount for the year for each child (the 'date of gift' field won't let me write in 'monthly'). This means I would need to itemise 3 people x 12 months x 7 years = 252 separate gifts. Is this really necessary? How do I even do that?!

Secondary question: do I record every gift and mark 'allowance' for each one until I reach 3k for the year? Or do I just record the ones over the allowance?

Keep_pedalling

When did your father die? While they were doing this as joint gifts they were well under the annual exemption so nothing to declare while he was still alive, assuming theses are the only gifts they made.

Also the combined NRBs come to £650k non £625k. If your mother’s estate is well under IHT territory then it is pointless claiming gifts from excess income as it involves too much work, far simpler just to declare non exemp gifts.

probate_slave

On the question of reporting the gifts to grandchildren on IHT403, you can show annual totals by person and tax year on pages 3 & 4, with details of gifts including dates on a separate schedule, perhaps in grid form.

Agree with KP that if the total value of gifts over 7 years doesn't push the estate over the IHT threshold, there's no need to claim exemption for any of them. You will spare yourself the trouble of completing the infamous page 8.

Cubicsrube

Hi, thanks so much for your replies (I notice you both answer a lot of questions with expertise - very grateful!) My father died in July 2019, so I think that means the grandchildren's gifts in that tax year are covered by their joint allowance. For the other 6 years it was just my mum giving.

I'm still waiting for her 7 years of bank statements to arrive, but as far as we know these are the only gifts she made, with the exception of one £1000 gift to my cousin.

The value of her estate is at about 750k gross - that's cash, an investment account and a flat valued at 350k. Dad left his entire estate to mum, so we are claiming transfer of dad's unused NRB and residence NRB. She has left her house to me and my sibling. No trusts or anything. Based on that, are you suggesting we just declare the regular money to grandchildren and don't need to claim gifts-from-income exemption as there won't be any tax to pay anyway?

probate_slave

Have you included your mother's house in the £750k estate total? May I ask its value?

Cubicsrube

Sorry, I said house and I meant flat. The flat is 350k and she has left that along with everything else to me and my sibling. There is no other property as she downsized after dad's death.

probate_slave

Then your mother's estate benefits from the full £350k RNRB and TRNB. (Under the downsizing rules this would be the case even if the flat was worth less than £350k.) You have plenty of headroom for what I estimate to be around £36,100 of gifts against a £1m allowance. And so there's just no need to claim exemption for any of the gifts.

You will still need to declare them on IHT403 of course, going back to July 2018. So there are actually 8 tax years in play. After July 2019 the monthly gifts double.

Cubicsrube

Thanks so much for helping me through this - can I ask, what do you mean by 'after july 2019 the monthly gifts double'? Am I declaring a total per tax year per grandchild, then deducting the 6k allowance for the first two tax years, and 3k of allowance for the remaining tax years? Or do I only write down the amount that's over the allowance? (sorry to ask so many remedial questions!)

probate_slave

My thinking was that you don't need to deduct any allowances whatsoever, you simply enter the raw gifts. While your father was alive the total monthly gifts from your mother were 3 x 75 = £225 (since they were shared). After his death they doubled to 3 x 150 = £450.

In terms of IHT403 the entries would read something like:
[2018/19 Ignore since HMRC don't want to know about gifts totalling under £3k]
2019/20 Grandchild A £1,575 (and similar for B & C)
2020/21 Grandchild A £1,800
.....etc until
[2025/26 Again ignore]

Of course you can apply the £3k annual exemption if you like, but this method has the benefit of simplicity.

Keep_pedalling

Cubicsrube said:

Thanks so much for helping me through this - can I ask, what do you mean by 'after july 2019 the monthly gifts double'? Am I declaring a total per tax year per grandchild, then deducting the 6k allowance for the first two tax years, and 3k of allowance for the remaining tax years? Or do I only write down the amount that's over the allowance? (sorry to ask so many remedial questions!)

The monthly gifts up to July 2019 were joint gifts after that they became single gifts. In years previous to this the joint gifts were covered by the combined annual exemptions so used up none of grandfathers NRB.

This would be a lot simpler if annual rather than monthly gifts had been made as there would be a lot less of them. The gifts in the earlier months of the year would be exempt and would not need to be declared it is only the gifts that exceed the annual £3000 exemption that has to be declared. So assuming that all gifts were made between the 1st and 5th day of each month and that the July gift was made while the OPs father was still alive her exemptions would be used up as follows.

FY 2019-20 May - July £225 per month, Aug - Dec £450 per month. Jan £265. 

This leaves £265 of non exempt gifts for Jan plus £450 per month for Feb through to April.

FYs 2020-21 through to 2024 - 2025 May -Oct £450 per month, Nov £300. 
This leaves £150 for Nov and £450 per month for Dec through April.

This financial year the annual exemption would not be exceeded so nothing to declare. 

You would also need to add that the one off £1000 into these calculations. 

Even with those exempt gifts it leaves you a lot of gifts to declare. 

Cubicsrube

Thank you both so much, the concrete example of how to lay it out is super helpful. (I am definitely taking the learning from this for my own future gifting: 3000 once a year split between kids!)