IHT400 potential correction.

Alphatauri

Parent A dies and leaves everything to parent B. In the last two years before parent A’s death the parents jointly gifted £300k. Parents each have IHT £325k and RNRB £175k. Joint estate after gifts is £600k so no inheritance tax. 

Savings are with NS&I who require probate. Parent B as Executor did probate and completed IHT400 on which they correctly declared £300k (50% of joint assets at date of death) but stated £0.00 gifts. Children believe £150k, 50% of gifts, should have been declared and want to correct the IHT 400. Parent B is adamant they don’t need to do a correction because there is no inheritance tax to pay. 

Does the IHT400 need to be corrected? 

Note: The figures are illustrative. I am aware of deprivation of assets that is not my question. 

Thank you

poseidon1

Kids are correct.

The £150k gift ( presumably to the kids) used up £150k of the deceased NRB leaving only the balance of £175k to carry forward to surviving parent. Failure to declare the gift on the IHT 400 is a material error that could mean the £150k already utilised is overlooked when 2nd parent dies and £325k is claimed in error.

 Form IHT403 ( Gifts and other transfers of value)  should  be submitted to HMRC  asap with apologies, to put the record straight. The surviving parent should also be reminded that their PET of £150k could similarly reduce their NRB on death if they fail to survive 7 years.  Should be noted the remaining estate need only increase by  £105k during the survivor's 7 year survival window for IHT to be in point.

Keep_pedalling

Why was an IHT return made in the first place? Assuming they were married or civil partners this was an exempt estate and no IHT return required. If they were not married then yes an IHT return would be required but IHT would have been payable as the RNRB could not be claimed and the value for IHT purposes would be £450k. 

Alphatauri

@poseidon1 Thank you. 

You have confirmed exactly what I thought. I haven’t used real figures and Parent Bs assets are decreasing due to caring costs so IHT will be extremely unlikely unless the Government reduce the IHT thresholds. 

I will be amending the IHT 400 and completing the IHT403 as soon as I have all the figures. 

Keep_pedalling

Alphatauri said:

@poseidon1 Thank you. 

You have confirmed exactly what I thought. I haven’t used real figures and Parent Bs assets are decreasing due to caring costs so IHT will be extremely unlikely unless the Government reduce the IHT thresholds. 

I will be amending the IHT 400 and completing the IHT403 as soon as I have all the figures. 

It is down to the executor to make the correction and form C4 is required.

https://www.gov.uk/government/publications/inheritance-tax-corrective-account-c4

I still don’t know why an IHT return was required in the first place though.

NorthYorkie

Remember that there would perhaps be the annual exemption (or two?) to come off the £150K before it was covered by A's nil rate band.

Alphatauri

@Keep_pedalling Parent B thought they had to do an IHT form. I think NS&I requiring probate meant they thought they needed to do the whole process.

The point is having submitted an incorrect IHT400 it now needs correcting. Thank you for the link to form C4. 

poseidon1

Alphatauri said:

@Keep_pedalling Parent B thought they had to do an IHT form. I think NS&I requiring probate meant they thought they needed to do the whole process.

The point is having submitted an incorrect IHT400 it now needs correcting. Thank you for the link to form C4. 

Unfortunately since there was no IHT due or payable the form C4 is not in point, and in any event there is nowhere on the C4 to report overlooked gifts/transfers of value (only assets/ liabilities at date of death). Back to the IHT 403 I think.

Keep_pedalling

I think the important thing is to make sure that the executors of your mother’s estate take into account the gift when claiming the transferable NRB. If you are that executor then I think I would simply let things stand as they are, but if in doubt call HMRC and see if an amended return is required is this very unusual situation.