IHT - GWRoB - Complications

Albermarle

Does this all become a further pointer towards GWRoB rather than a simple, unencumbered gift?

Yes, because if it was an unencumbered gift, your wife would be entitled to all the prize money, regardless of the amount, and would have no obligation to report how much had been won back to the giver.

QrizB

In that conversation, FiL said he would like a report each year of how much prize money has been won so that he can decide what he'd like to do with it.

The answer to this should be, "you've not won any prize money because the PBs belong to Mrs G_C." If you can't say that, the money isn't an unencumbered gift (and arguably isn't a gift at all).

flaneurs_lobster

https://forums.moneysavingexpert.com/discussion/comment/82165512#Comment_82165512

Which is, of course, exactly the point of this whole thread!

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/82165506#Comment_82165506

https://forums.moneysavingexpert.com/discussion/comment/82165512#Comment_82165512

Thanks - it all just rolls back round to the beginning "effectively you are looking after my money".

FiL really thinks that his actions are avoiding IHT and, without that belief, he would not be doing any of this otherwise.

Unfortunately, the whole "It can't be GWRoB because I deny that concept exists" simply won't wash.

Of course, as is often said in these thread, IHT liability can never increase by making a gift whether that gift is PET or GWRoB.

Dead_keen

Of course, as is often said in these thread, IHT liability can never increase by making a gift whether that gift is PET or GWRoB.

Unfortunately, I am not convinced that is right. But if things don't fall in value it is practically right.

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/82165638#Comment_82165638

I don't wish to derail the thread, but what are the circumstances that making a gift can result in increased IHT?

AIUI, an asset starts in the Estate of "A". If the asset is not gifted, then the asset is in the Estate of "A" and subject to IHT. If the asset is gifted it is no longer in the Estate of "A" and may be subject to IHT. The act of making the gift has transferred the asset from "subject to IHT" to "may be subject to IHT".

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82165654#Comment_82165654

I think the idea is that if the £50k had stayed in FiL's hands he might have stuck it in some investment which fell in value so by the time he died it was not £50k any longer but £25k say.

Dead_keen

what are the circumstances that making a gift can result in increased IHT?

Let's say someone gifted their their flat worth £400,000 a few years ago (a £400,000 PET). They continue to live in it without paying rent (so a GWR). But die at the time when the cladding has not been sorted, the managing agent has been arrested after nicking the cladding funds and so no one can get a mortgage meaning. There are 26 other flats in the same block for sale and no one has sold for a couple of years The estate agent says the flat is worth £300,000 on death and you'd be better off renting out until it is all sorted.

If they never made the PET, their estate would be £300,000 for IHT and so no IHT is due. With the failed PET and no GWR, it is £400,000 and so IHT is due.

But in my made up example we have both and so the amount that counts for IHT is £400,000 (being the higher of (i) the failed PET value (£400,000), and (ii) the GWR value (£300,000)). So making the gift has increased the IHT due (from nothing to 40% of £75,000).

silvercar

https://forums.moneysavingexpert.com/discussion/comment/82165506#Comment_82165506

Arguably that is the case. The PBs are hers. If FiL phoned the PB helpline and asked the prize money he’d been told that they aren’t his. The fact that he chooses to think it’s his money, and you will humour him in this regard, is irrelevant. They are your wife’s, should the absolute worst happen, hmrc would consider them part of her estate, along with any prizes.

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/82166649#Comment_82166649

So, and I hope it does not realise, if my wife were to pass, HMRC would consider the value of the PBs as part of her Estate and may be subject to IHT.

If FiL then passed a couple of months later, I understand that HMRC would also potentially consider the value as part of FiL's Estate if the PBs were considered to have been GWRoB or failed PET.

HMRC would, as it were, have cake and eat cake.