IHT403 - £3,000 carry over and earlier gifts

October22Mover

https://forums.moneysavingexpert.com/discussion/comment/82045229#Comment_82045229

I'm really sorry to come back on this again, but what you're saying here is the opposite to what @keep_pedalling told me and that is the root of my confusion.

They said if you gift £250 to one person in the first year, and then £6,000 to that person in the second year, then only £5,750 is ignored in that second year as "you have exceeded your annual exemptions over the 2 years by £250".

They also say "you can’t make a small gift to a person and then carry over the annal exemption and gift it to the same person the following year, as you will have effectively gifted that person £3250 for the first year."

But you seem to be saying you can gift someone £250 one year, then £6,000 the next year and it will all be IHT free as you are covered under different exemptions.

When I said "it makes sense to me" I meant the explanation another person on this forum has given makes sense to me but I have further questions.

I'm happy to accept either but this is exactly what I'm trying to clarify, since I'm getting two different answers.

Dead_keen

I'm really sorry to come back on this again, but what you're saying here is the opposite to what @keep_pedalling told me and that is the root of my confusion .

You are right, I am saying the opposite. And I am happy to say I am right. I added links to my post so you could check the legislation and what HMRC says about the order of using the exemptions. @poseidon1 has also added a link to HMRC's manual that gives a bit more guidance. As a random stranger on the internet, I'm not sure what more I can say to persuade you.

Just to be clear, if the numbers were bigger (rather than your illustratively small ones), my first post also contradicts the following statement:

None of the people pay any IHT on this, if there is any to pay it comes out of the residual estate.

as I said:

If these gifts fall below the IHT threshold, no IHT is paid by the recipients of the gifts. If the real numbers are bigger (so that the gifts exceed the total of the nil rate bands) then the recipient pays IHT on the excess. Any IHT due on the value of the assets on death is paid by the estate.

October22Mover

Great thank you - not asking to be persuaded, just trying to confirm that you were saying the other response was wrong.

I will say I can't see anything in the links you or poseidon1 have sent me that clarify the precise scenario I'm describing, so think I will need to make my best judgement and see if HMRC query it.

Dead_keen

You could try asking your favourite LLM something like:

How does the IHT small gifts exemption interact with the annual exemption over consecutive years. For example, if individual A was given £400 in year 1 and then £10,000 in year 2. How would it be different if individual A was given £250 in year 1 instead?

You could then say something like:

On an internet forum, someone said that even though the £250 was covered by the small gifts exemption, it does reduce the annual exemption carry-forward amount. Is that right? If not, why not?

And see what it says and what links it produces. If it doesn't find a decent example for you (and it may not depending on your LLM and what is publically available on the internet), you could be more explicit:

Are there any examples on the internet with this type of scenario?

The links I set out are mostly to the legislation. The trouble with legislation is that it is difficult to get your head around it to prove a negative. If it said something like "When working out the carry forward annual exemption amount you must deduct small gifts from the previous year that were exempt in that year" then life would be easy. But it doesn't say that, because that is not the rule, and so it gets harder. People who have a practical knowledge of IHT but who do not specialise in IHT (think chartered accountant who did their exams a while ago) will be better able to get to grips with it but it will still be hard to make sure they understand the legislation properly. People who specialise in some / all aspect of IHT, and who regular read the IHT legislation, will find it easier.

You could try asking @poseidon1 what her experience of geeky IHT legislation is and see if that re-assures you.