When does subsiding a family member become a gift for IHT purposes

Albermarle

Obviously it depends on circumstances, but what about a situation where a family member has no assets and needs care, but the social services are reluctant to fund the care adequately ( not an uncommon situation I guess) . So if a close but better off family member helps out by paying a care agency directly for example, but then died within 7 years, would those care costs that had been paid for, be counted back into the estate? Or would HMRC take a more lenient view that it was more of an ongoing cost of supporting a close family member, than a gift?

sheramber

A person with no assets is unlikely to be die to

Pay IHT.

What estate will there be?

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82094427#Comment_82094427

I was referring to the donor, who could well be liable for IHT.

eskbanker

If it's possible to structure the funding as regular payments from income (as opposed to from capital), then it can be kept out of IHT scope:

You can make regular payments to another person, for example to help with their living costs. There’s no limit to how much you can give tax free, as long as:

you can afford the payments after meeting your usual living costs

you pay from your regular monthly income

These are known as ‘normal expenditure out of income’. They can include:

paying rent for your child

paying into a savings account for a child under 18

giving financial support to an elderly relative

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

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82094436#Comment_82094436

I was aware of the Gifting from income rules, as you know there are numerous threads about it. However you have to follow certain rules, and your executor has to prove to HMRC it was all done correctly ( and the legislation might change someday).

I was more wondering whether paying for otherwise unmet essential care costs, urgent medical treatment etc for a close family member, might be seen more as more like what any family might do in those circumstances, rather than as gifts as such.

eskbanker

I understood that gifting (under the listed exemption criteria) was the only way to take money out of IHT consideration, but happy to be corrected!

GrubbyGirl_2

This is probably my stupidity and the fact I've never had any dealings with inheritance tax but at the end pf the day how would they know? Does HMRC go through years of bank statements to see what you've spent?

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82094471#Comment_82094471

You are probably right, but as discussed in past threads, there are some grey areas. Such as inviting your adult children on holiday and paying for them.

silvercar

https://forums.moneysavingexpert.com/discussion/comment/82094510#Comment_82094510

Executors role, to make sure everything is accounted for accurately.

Keep_pedalling

Regardless of what the gift was for (unless it was to a charity or political party) it falls under the 7 year rule.

DRS1

I suspect one complication may be that the money will likely be going out on a monthly or weekly basis. It is not going to look like a gift. So an executor might well miss it.

The donor may have little choice but to try to fit the payments into the gifts out of excess income exemption.