IHT400/IHT403. Gifts from surplus income help please.

lohr500

Sorry for yet another post on gifts from surplus income, but I am going round in circles.

I am the executor of my father's will and I am in the process of applying for probate.

His affairs were pretty straightforward and his will leaves everything to his surviving spouse.

The only thing I am unclear on is some gifting that he has done over the past 5 years to his four grandchildren. In total the value is £100k.
He kept meticulous records based on the IHT403 form structure to demonstrate that the gifting was from surplus income and was not eroding any capital.
 
I have used the online .GOV inheritance tax and probate value checker, including entering the gifting value of £100k. At the end of the process it advises me that no inheritance tax is payable.

Does this mean I do not need to complete an IHT400/IHT403?

I've also filled out the online Probate application forms, but not yet sent and at no point does it request that an IHT400 or IHT403 form should be sent.  

Any insight or guidance would be very much appreciated. Thanks.

Keep_pedalling

You do not need to make an IHT return because this is an excepted estate. Even if the gifts were not from excess income this would be the case. Where this makes a difference is with his wife’s estate as her executors can claim the full transferable NRB. 

If her estate exceeds £650k on her death an IHT return will be required and form IHT402 will need to be used to claim the transferable NRB and exempt gifts need to be declared on that form so keep those records safe. 

https://assets.publishing.service.gov.uk/media/67eba2faba01abac8e9fe9af/IHT402.pdf

lohr500

Keep_pedalling said:

You do not need to make an IHT return because this is an excepted estate. Even if the gifts were not from excess income this would be the case. Where this makes a difference is with his wife’s estate as her executors can claim the full transferable NRB. 

If her estate exceeds £650k on her death an IHT return will be required and form IHT402 will need to be used to claim the transferable NRB and exempt gifts need to be declared on that form so keep those records safe. 

https://assets.publishing.service.gov.uk/media/67eba2faba01abac8e9fe9af/IHT402.pdf

Thank you so much for your quick and clear reply.
I will definitely keep those meticulous records safe and ready for the future.

Further to this, does the 7 year rule apply to surplus income gifting? In that if my mother survives for 7 years since the last gifts were made (which I hope she does) then those gifts would not need to be declared on her passing?

Keep_pedalling

lohr500 said:

Keep_pedalling said:

You do not need to make an IHT return because this is an excepted estate. Even if the gifts were not from excess income this would be the case. Where this makes a difference is with his wife’s estate as her executors can claim the full transferable NRB. 

If her estate exceeds £650k on her death an IHT return will be required and form IHT402 will need to be used to claim the transferable NRB and exempt gifts need to be declared on that form so keep those records safe. 

https://assets.publishing.service.gov.uk/media/67eba2faba01abac8e9fe9af/IHT402.pdf

Thank you so much for your quick and clear reply.
I will definitely keep those meticulous records safe and ready for the future.

Further to this, does the 7 year rule apply to surplus income gifting? In that if my mother survives for 7 years since the last gifts were made (which I hope she does) then those gifts would not need to be declared on her passing?

No, because gifts from excess income are exempt from the moment they are gifted. 

lohr500

Keep_pedalling said:

lohr500 said:

Keep_pedalling said:

You do not need to make an IHT return because this is an excepted estate. Even if the gifts were not from excess income this would be the case. Where this makes a difference is with his wife’s estate as her executors can claim the full transferable NRB. 

If her estate exceeds £650k on her death an IHT return will be required and form IHT402 will need to be used to claim the transferable NRB and exempt gifts need to be declared on that form so keep those records safe. 

https://assets.publishing.service.gov.uk/media/67eba2faba01abac8e9fe9af/IHT402.pdf

Thank you so much for your quick and clear reply.
I will definitely keep those meticulous records safe and ready for the future.

Further to this, does the 7 year rule apply to surplus income gifting? In that if my mother survives for 7 years since the last gifts were made (which I hope she does) then those gifts would not need to be declared on her passing?

No, because gifts from excess income are exempt from the moment they are gifted. 

Thanks again.

lohr500

Keep_pedalling said:

lohr500 said:

Keep_pedalling said:

You do not need to make an IHT return because this is an excepted estate. Even if the gifts were not from excess income this would be the case. Where this makes a difference is with his wife’s estate as her executors can claim the full transferable NRB. 

If her estate exceeds £650k on her death an IHT return will be required and form IHT402 will need to be used to claim the transferable NRB and exempt gifts need to be declared on that form so keep those records safe. 

https://assets.publishing.service.gov.uk/media/67eba2faba01abac8e9fe9af/IHT402.pdf

Thank you so much for your quick and clear reply.
I will definitely keep those meticulous records safe and ready for the future.

Further to this, does the 7 year rule apply to surplus income gifting? In that if my mother survives for 7 years since the last gifts were made (which I hope she does) then those gifts would not need to be declared on her passing?

No, because gifts from excess income are exempt from the moment they are gifted. 

@Keep_pedalling

Sorry for more questions on this, but I just want to be 100% sure before submitting the Probate request.

Having gone through the detailed records of my father's gifting again, I have calculated that after deducting the £3000 annual gifting allowance, his total gift value from surplus income is £80k.

With the £80k gifts included in the .Gov IHT/Probate calculator it tells me the "Net qualifying estate value for IHT" is £77.5k .(There is a funeral cost of £2500 being deducted in the calculations).
The calculator tells me there is no IHT to pay.

Questions :

Because this is an excepted estate, could I still submit an IHT400/IHT403 now to eliminate the £80k gifts, thus allowing my mother's executors to claim the full transferable NRB without having to declare the exempt gifts at the time of her passing?

If the answer to this is yes, and I choose not to submit the IHT400/IHT403 now, then if I understand your reply correctly, we can still claim the exception as part of my mother's affairs when she passes. Effectively we are just pushing the workload out into the future. Have I understood your reply correctly?

Again I really appreciate your input and accept that any reply given is purely an opinion and not to be taken as qualified guidance.

Thanks


 
 

Keep_pedalling

No, because this is an excepted estate you can’t submit anything to HMRC now. You could fill in a copy of IHT403 and keep it with a copy of your mother’s will so you have the figures to hand when needed.

One other point about this exemption is that you have to show a pattern of gifting from excess income was established. So if for example you have £10k of excess income and give that away in 7 gifts over 7 years then that is OK but if in that 7 years you make one or two larger gifts then it is not.

lohr500

Keep_pedalling said:

No, because this is an excepted estate you can’t submit anything to HMRC now. You could fill in a copy of IHT403 and keep it with a copy of your mother’s will so you have the figures to hand when needed.

One other point about this exemption is that you have to show a pattern of gifting from excess income was established. So if for example you have £10k of excess income and give that away in 7 gifts over 7 years then that is OK but if in that 7 years you make one or two larger gifts then it is not.

Thanks again!!

Filling in the IHT403 now and keeping it safe is a great idea as it captures the data whilst it is relatively recent.
In anticipation of his passing, he had filled out a dummy IHT403 form with the required level of income/expenditure granularity.

And point noted on the gifting pattern. Thankfully there is a pattern of regular gifting and copies of letters that he gave to the grandchildren explaining that he was gifting from surplus income on a regular basis.