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  • FIRST POST
    • MumOf2
    • By MumOf2 6th May 19, 3:57 PM
    • 562Posts
    • 958Thanks
    MumOf2
    PETs - IHT403
    • #1
    • 6th May 19, 3:57 PM
    PETs - IHT403 6th May 19 at 3:57 PM
    Hello all you wonderful people

    Advice would be much appreciated. I'm in the process of getting figures together to complete IHT403 - potentially exempt transfers. It requires figures for gross income less income tax and net income, also expenditure under various headings. So I'm going through bank statements for the past seven years trying to get all the background figures together.

    Just a couple of questions:

    1. How comprehensive and exact do these figures have to be? Income, tax and net income is easy. But do you have to include every single one penny spent? Or is there a more broad-brush approach so you include all the bigger items such as council tax, utilities obviously, then also there's a heading 'other' - how far do you go with this? It's proving really difficult to identify exactly what each item was for (a lot of them are cheques and I can't locate the cheque stubs going back to 2012) and there are cash withdrawals that I can't possibly know how they were spent.

    2. Some expenditure is more capital than income, e.g. home improvements, a chairlift, defined non-recurring costs. How do you distinguish between this and recurring normal household costs? If HMRC were to go through the statements, how would they identify whether something is capex or expenditure from income?

    3. 3,000 a year is allowed as a non-IHTable transfer. Do you include this 3,000 (in our case divided between two of us and transferred on 6 April every year for the past probably 25 years) in IHT403 or ignore it as it's defined as an annual exempt transfer?

    4. Do you count 7 years back from the date of death on a full-year basis or by full month or from the exact date of death? For example, if someone dies on 25 March 2019, do you:
    i) look back to the full financial year 06/04/2011-05/04/2012 and work forward, or
    ii) take it from 1 March 2012 onwards, or
    iii) take it from 25 March 2012 onwards, or
    iv) take it from the full financial year 06/04/2012-05/04/2013?

    We have been receiving regular transfers on a monthly, quarterly and annual basis for the past at least 15 years which is so really wonderful, but it does concern me that HMRC will now go through all entries on bank statements for the past 7 years and this could stir up a hornets' nest! There are letters of intent to both of us signed by my mother so we've covered that one at least.

    Thank you in advance.

    MumOf2
    x
    MumOf4
    Quit Date: 20th November 2009, 7pm

Page 2
    • Robert McGeddon
    • By Robert McGeddon 13th May 19, 10:52 AM
    • 41 Posts
    • 26 Thanks
    Robert McGeddon
    We'll do all the legwork now in preparation - sounds a bit morbid but we've just done one probate application and realise that it would have been so much more straightforward at such an emotional time to have been documenting income and expenditure as we went along rather than doing it all post mortem. That one went just fine and HMRC accepted our figures without demur.

    Then for this one, when the inevitable happens we'll have all the detailed figures in front of us and can decide how to proceed in re instructing a probate professional.

    x
    Originally posted by MumOf2
    MumOf2,

    Sounds like you're well organised and thinking ahead - good news.

    Congrats on your successful probate exercise. Did it include paying IHT? If so, then double congrats!

    I hadn't realised until your most recent post that you were referring to a future probate situation. I may be speaking out of turn but I really think you should consider getting your relative to get professional estate planning advice. The cost would be paid before probate and would therefore be tax effective. IHT of 500K implies an estate worth circa 1.7 - 2.2Million. This is substantial. It is possible that actions taken while your relative is still alive could result in more of the estate being passed on. An immediate thought is that if a large chunk is earmarked for you and in turn you intend passing the residue on to your kids then there will be a 2nd IHT hit. Bypassing you or setting up a trust may mitigate some of this. If the advice costs 5,000 that's only 1% of the tax involved. I think it likely the advice would pay for itself and even if if didn't at least you get certainty that you weren't paying too much tax. I'd personally aim for a medium sized firm of Chartered Accountants with estate planning specialism. But I'm speculating . . . and well outside your original post!
    • Tom99
    • By Tom99 13th May 19, 11:13 AM
    • 4,934 Posts
    • 3,472 Thanks
    Tom99
    MumOf2,

    Sounds like you're well organised and thinking ahead - good news.

    Congrats on your successful probate exercise. Did it include paying IHT? If so, then double congrats!

    I hadn't realised until your most recent post that you were referring to a future probate situation. I may be speaking out of turn but I really think you should consider getting your relative to get professional estate planning advice. The cost would be paid before probate and would therefore be tax effective. IHT of 500K implies an estate worth circa 1.7 - 2.2Million. This is substantial. It is possible that actions taken while your relative is still alive could result in more of the estate being passed on. An immediate thought is that if a large chunk is earmarked for you and in turn you intend passing the residue on to your kids then there will be a 2nd IHT hit. Bypassing you or setting up a trust may mitigate some of this. If the advice costs 5,000 that's only 1% of the tax involved. I think it likely the advice would pay for itself and even if if didn't at least you get certainty that you weren't paying too much tax. I'd personally aim for a medium sized firm of Chartered Accountants with estate planning specialism. But I'm speculating . . . and well outside your original post!
    Originally posted by Robert McGeddon
    A deed of variation would deal with that.
    • Robert McGeddon
    • By Robert McGeddon 13th May 19, 6:01 PM
    • 41 Posts
    • 26 Thanks
    Robert McGeddon
    A deed of variation would deal with that.
    Originally posted by Tom99
    Agreed.

    But the mindset to address the issues before they become issues can only be positive. It seems MumOf2 has the opportunity to work with her relative to do some estate planning in advance of sorting out the estate. Many (maybe most) people do not. Perhaps it's already in place. If not, in her shoes, I'd be on to it pronto.
    • MumOf2
    • By MumOf2 15th May 19, 12:47 PM
    • 562 Posts
    • 958 Thanks
    MumOf2
    Thanks all again. I'm afraid there's a bit of strong will going on here (no pun...) and a refusal to bypass me to benefit the next generation either directly or via a trust or deed of variation. Oh dear. So we are where we are and at the end of it all we've had so much benefit over so many years, and the grandchildren have also benefited hugely with independent education, university under graduate and post graduate study then professional exams which have set them up in fabulous occupations. So we're all pretty philosophical about IHT and just really want to get it right by HMRC whilst still ensuring that we don't pay too much because of technical ignorance!

    Having said this, the last professional advice (a high street Bank) was that as much as possible should be paid directly from the 'donor' to, say, a supplier rather than transferring money to the donee's account who then pays the supplier. So, e.g., a car is purchased directly by the donor from the car dealer. The Bank said this wouldn't be counted as a gift or be used in any IHT calculation so would reduce the amount of IHT. But now I realise that, although it wouldn't be on the list as a gift, it would indeed be an item of expenditure which would decrease any surplus income from which the PETs come, so it's as broad as long whether it's paid directly to the supplier (expenditure) or via the donee (PET). Either way, when you get to the bottom line it's the same effect. Same as a mortgage which was paid monthly from the donor to the bank with which the mortgage was held (which was in the donee's name). The Bank said it would reduce IHT as the gift hadn't been given to the donee who then made the mortgage payment, but it's the same as the car - either way it comes out as an item of expenditure or as a PET.

    So I'm not sure this advice was exactly robust!

    Hope you're all enjoying the sun today.

    MumOf2
    x
    MumOf4
    Quit Date: 20th November 2009, 7pm

    • MumOf2
    • By MumOf2 15th May 19, 12:54 PM
    • 562 Posts
    • 958 Thanks
    MumOf2
    Robert - re probate just completed. This was more straightforward as it was just under the IHT threshold with two thresholds (650) and two primary residence nil rate bands (250). Having got all the papers and figures together in a fortnight, it then took us 30 minutes to complete the form, take photocopies for our records and walk to the post office. We had been quoted a flat fee plus 2% of the estate but I thought we should have a go ourselves. Three weeks later we received the grant of probate. Completion on sale of house four weeks after that to cash buyer.

    The next one will take a little longer...

    MumOf2
    x
    MumOf4
    Quit Date: 20th November 2009, 7pm

    • getmore4less
    • By getmore4less 15th May 19, 1:14 PM
    • 37,442 Posts
    • 23,116 Thanks
    getmore4less
    Thanks all again. I'm afraid there's a bit of strong will going on here (no pun...) and a refusal to bypass me to benefit the next generation either directly or via a trust or deed of variation. Oh dear. So we are where we are and at the end of it all we've had so much benefit over so many years, and the grandchildren have also benefited hugely with independent education, university under graduate and post graduate study then professional exams which have set them up in fabulous occupations. So we're all pretty philosophical about IHT and just really want to get it right by HMRC whilst still ensuring that we don't pay too much because of technical ignorance!

    Having said this, the last professional advice (a high street Bank) was that as much as possible should be paid directly from the 'donor' to, say, a supplier rather than transferring money to the donee's account who then pays the supplier. So, e.g., a car is purchased directly by the donor from the car dealer. The Bank said this wouldn't be counted as a gift or be used in any IHT calculation so would reduce the amount of IHT. But now I realise that, although it wouldn't be on the list as a gift, it would indeed be an item of expenditure which would decrease any surplus income from which the PETs come, so it's as broad as long whether it's paid directly to the supplier (expenditure) or via the donee (PET). Either way, when you get to the bottom line it's the same effect. Same as a mortgage which was paid monthly from the donor to the bank with which the mortgage was held (which was in the donee's name). The Bank said it would reduce IHT as the gift hadn't been given to the donee who then made the mortgage payment, but it's the same as the car - either way it comes out as an item of expenditure or as a PET.

    So I'm not sure this advice was exactly robust!

    Hope you're all enjoying the sun today.

    MumOf2
    x
    Originally posted by MumOf2

    IT is still a gift(PET) if the car goes to someone.

    One of the key criteria on gifts from income is they are "normal expenses" sometimes looked at regular(but they don't have to be the same every time).

    Covered partialy in the manual
    https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14250


    Buying cars probably would not qualify unless there was a pattern.
    paying a mortgage has a pattern.
    Last edited by getmore4less; 15-05-2019 at 1:17 PM.
    • MumOf2
    • By MumOf2 16th May 19, 9:15 PM
    • 562 Posts
    • 958 Thanks
    MumOf2
    Thanks, GetMore. That's really useful in distinguishing between a PET from income (regular gifts - monthly cash, mortgage, etc.) and one-off gifts. I'll have a look at the manual you cite.

    You've all been really helpful and have provided so much useful information to mull over as we go forward with getting all the figures together. Thanks, all of you.

    MumOf2
    x

    IT is still a gift(PET) if the car goes to someone.

    One of the key criteria on gifts from income is they are "normal expenses" sometimes looked at regular(but they don't have to be the same every time).

    Covered partialy in the manual
    https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14250


    Buying cars probably would not qualify unless there was a pattern.
    paying a mortgage has a pattern.
    Originally posted by getmore4less
    MumOf4
    Quit Date: 20th November 2009, 7pm

    • Yorkshireman99
    • By Yorkshireman99 17th May 19, 5:50 AM
    • 5,395 Posts
    • 4,561 Thanks
    Yorkshireman99
    Thanks, GetMore. That's really useful in distinguishing between a PET from income (regular gifts - monthly cash, mortgage, etc.) and one-off gifts. I'll have a look at the manual you cite.

    You've all been really helpful and have provided so much useful information to mull over as we go forward with getting all the figures together. Thanks, all of you.

    MumOf2
    x
    Originally posted by MumOf2
    Good as the advice on here often is be careful to cross check. HMR&C manuals are not always easy to understand and may not be up to date. As a general rule don’t be too greedy in claiming gifts out of income since HMR&C can be very unforgiving if the suspect someone is trying it on.
    • MumOf2
    • By MumOf2 22nd Aug 19, 11:13 PM
    • 562 Posts
    • 958 Thanks
    MumOf2
    An update - my mother passed away suddenly in the early hours of yesterday morning. I'm unable to sleep and am revisiting the issue of accounts and IHT using the invaluable HMRC manuals, getting my head around the current situation and 31 March 2020 deadline for IHT and the need to raise funds to pay either through the bank or by using the HMRC instalments system. Because we can't sell the house before getting grant of probate and can't get grant of probate until IHT is paid, we definitely won't have the funds to pay c.500K in IHT. So then they 'tax' you even more but call it 'annual interest' and 'interest on repayment'. Oh dear...

    Anyway, I'll now start on 6 April 2012 and finish on 21 August 2019. I've done the first year so we'll be looking at 2013/14 tax year next. The first few months aren't available online any more but fortunately mum kept all her bank statements so we can do it from there.

    Once the data are inputted and draft estate accounts prepared, we'll decide whether to go to an estate/probate specialist. At least the legwork will have been completed.

    What I have found out is that mum had two current accounts, which could well fall into the category identified in MacDowall when it was held that lifetime gifts were exempt when paid from current accounts which held "identifiably money which was essentially unspent income and not invested in any more formal sense".

    In addition, there is provision in the 'Usual standard' para for exempting transfers which were started when income was higher and no reduction in income was foreseen. This is the case here - the regular transfers were started in March 2004 when dividends and interest rates on ISAs, etc. were so much higher, then came the 2008 banking crisis and dividends went through the floor in the banking sector which caused a significant reduction in income. However, the transfers continued on the same regular basis and in the same amounts as before drawing on the second current account when necessary.

    Living standards didn't change at all; it was just that there was a good surplus between 2004 and 2008, and a small deficit since then. The deficit never became critical and there was always a healthy balance in the current accounts; living standards were never compromised mainly because as someone becomes older their needs become fewer. The car wasn't used so no running costs, mum couldn't go out, ate very very little, didn't buy new clothes, did less and less, really just spent time with the family in her home. It wasn't for want of trying on our part; it was just what mum wanted.

    Sorry for the essay and thanks for reading.

    MumOf2
    MumOf4
    Quit Date: 20th November 2009, 7pm

    • Tom99
    • By Tom99 23rd Aug 19, 3:54 AM
    • 4,934 Posts
    • 3,472 Thanks
    Tom99
    An update - my mother passed away suddenly in the early hours of yesterday morning. I'm unable to sleep and am revisiting the issue of accounts and IHT using the invaluable HMRC manuals, getting my head around the current situation and 31 March 2020 deadline for IHT and the need to raise funds to pay either through the bank or by using the HMRC instalments system. Because we can't sell the house before getting grant of probate and can't get grant of probate until IHT is paid, we definitely won't have the funds to pay c.500K in IHT. So then they 'tax' you even more but call it 'annual interest' and 'interest on repayment'. Oh dear...

    Anyway, I'll now start on 6 April 2012 and finish on 21 August 2019. I've done the first year so we'll be looking at 2013/14 tax year next. The first few months aren't available online any more but fortunately mum kept all her bank statements so we can do it from there.

    Once the data are inputted and draft estate accounts prepared, we'll decide whether to go to an estate/probate specialist. At least the legwork will have been completed.

    What I have found out is that mum had two current accounts, which could well fall into the category identified in MacDowall when it was held that lifetime gifts were exempt when paid from current accounts which held "identifiably money which was essentially unspent income and not invested in any more formal sense".

    In addition, there is provision in the 'Usual standard' para for exempting transfers which were started when income was higher and no reduction in income was foreseen. This is the case here - the regular transfers were started in March 2004 when dividends and interest rates on ISAs, etc. were so much higher, then came the 2008 banking crisis and dividends went through the floor in the banking sector which caused a significant reduction in income. However, the transfers continued on the same regular basis and in the same amounts as before drawing on the second current account when necessary.

    Living standards didn't change at all; it was just that there was a good surplus between 2004 and 2008, and a small deficit since then. The deficit never became critical and there was always a healthy balance in the current accounts; living standards were never compromised mainly because as someone becomes older their needs become fewer. The car wasn't used so no running costs, mum couldn't go out, ate very very little, didn't buy new clothes, did less and less, really just spent time with the family in her home. It wasn't for want of trying on our part; it was just what mum wanted.

    Sorry for the essay and thanks for reading.

    MumOf2
    Originally posted by MumOf2
    I think the 1st of the 10 installments will be due on 29th Feb (end of 6th month) not 31st Mar 2020 and interest would only be due from that date.

    If you elect for installments you only pay the IHT due on cash/shares now in order to obtain probate, then with tax due on the house in 10 installments. The total IHT bill is apportioned over all the taxable assets to work out how much you can defer on the house.
    Re gifts from income it seems you might be trying to carry over surplus income for more than two year which, whilst not ruled out completely, you may well be asked to show evidence this accumulated income had not become capital.
    • badger09
    • By badger09 23rd Aug 19, 1:55 PM
    • 7,416 Posts
    • 6,951 Thanks
    badger09
    An update - my mother passed away suddenly in the early hours of yesterday morning. I'm unable to sleep and am revisiting the issue of accounts and IHT using the invaluable HMRC manuals, getting my head around the current situation and 31 March 2020 deadline for IHT and the need to raise funds to pay either through the bank or by using the HMRC instalments system. Because we can't sell the house before getting grant of probate and can't get grant of probate until IHT is paid, we definitely won't have the funds to pay c.500K in IHT. So then they 'tax' you even more but call it 'annual interest' and 'interest on repayment'. Oh dear...

    Anyway, I'll now start on 6 April 2012 and finish on 21 August 2019. I've done the first year so we'll be looking at 2013/14 tax year next. The first few months aren't available online any more but fortunately mum kept all her bank statements so we can do it from there.

    Once the data are inputted and draft estate accounts prepared, we'll decide whether to go to an estate/probate specialist. At least the legwork will have been completed.

    What I have found out is that mum had two current accounts, which could well fall into the category identified in MacDowall when it was held that lifetime gifts were exempt when paid from current accounts which held "identifiably money which was essentially unspent income and not invested in any more formal sense".

    In addition, there is provision in the 'Usual standard' para for exempting transfers which were started when income was higher and no reduction in income was foreseen. This is the case here - the regular transfers were started in March 2004 when dividends and interest rates on ISAs, etc. were so much higher, then came the 2008 banking crisis and dividends went through the floor in the banking sector which caused a significant reduction in income. However, the transfers continued on the same regular basis and in the same amounts as before drawing on the second current account when necessary.

    Living standards didn't change at all; it was just that there was a good surplus between 2004 and 2008, and a small deficit since then. The deficit never became critical and there was always a healthy balance in the current accounts; living standards were never compromised mainly because as someone becomes older their needs become fewer. The car wasn't used so no running costs, mum couldn't go out, ate very very little, didn't buy new clothes, did less and less, really just spent time with the family in her home. It wasn't for want of trying on our part; it was just what mum wanted.

    Sorry for the essay and thanks for reading.

    MumOf2
    Originally posted by MumOf2
    So sorry to hear of your loss.

    I've been following your thread, can't offer any advice on your IHT issues, but didn't want to read and run.

    I can identify with your inability to sleep, and spent many useful hours in the middle of the night, writing letters & drawing up lists when I was executor for my sister last year. It's something to focus on and feels so much better than just lying in bed churning things over.

    Please give yourself time, and permission to grieve though. Even when its expected, death of a loved one is still a shock to the system, as you already know. Look after yourself.
    • MumOf2
    • By MumOf2 26th Aug 19, 10:21 PM
    • 562 Posts
    • 958 Thanks
    MumOf2
    I think the 1st of the 10 installments will be due on 29th Feb (end of 6th month) not 31st Mar 2020 and interest would only be due from that date.

    If you elect for installments you only pay the IHT due on cash/shares now in order to obtain probate, then with tax due on the house in 10 installments. The total IHT bill is apportioned over all the taxable assets to work out how much you can defer on the house.
    Re gifts from income it seems you might be trying to carry over surplus income for more than two year which, whilst not ruled out completely, you may well be asked to show evidence this accumulated income had not become capital.
    Originally posted by Tom99
    Thanks for this invaluable info in re instalments and what will be due on which part of the estate. I didn't realise it was only due on cash/shares in order to obtain probate which is excellent news.

    You're quite right about the deadline of end Feb, not March! Thank you.

    I've been through all entries for the past 7 and a bit years and it doesn't look too bad from the PET perspective. Carrying over from one year to the next deals with some of it; it's just the last year when we're relying on carrying forward two years but we're quite sanguine about not being allowed exemptions on transfers for that year.

    Bless mum, she made sure we benefitted as much as possible over all these years.

    MumOf2 x
    MumOf4
    Quit Date: 20th November 2009, 7pm

    • MumOf2
    • By MumOf2 26th Aug 19, 10:26 PM
    • 562 Posts
    • 958 Thanks
    MumOf2
    So sorry to hear of your loss.

    I've been following your thread, can't offer any advice on your IHT issues, but didn't want to read and run.

    I can identify with your inability to sleep, and spent many useful hours in the middle of the night, writing letters & drawing up lists when I was executor for my sister last year. It's something to focus on and feels so much better than just lying in bed churning things over.

    Please give yourself time, and permission to grieve though. Even when its expected, death of a loved one is still a shock to the system, as you already know. Look after yourself.
    Originally posted by badger09
    Thanks for your wise words, Badger. It was sort of expected because of mum's advanced years (90), but the end came suddenly and unexpectedly. It was all pretty traumatic as I drove 5 hours in the middle of the night to get here but just missed by 5 minutes because of road closures on the way. What a dreadful night it was for all of us.

    MumOf2
    x
    MumOf4
    Quit Date: 20th November 2009, 7pm

    • Tom99
    • By Tom99 27th Aug 19, 4:22 AM
    • 4,934 Posts
    • 3,472 Thanks
    Tom99
    Thanks for this invaluable info in re instalments and what will be due on which part of the estate. I didn't realise it was only due on cash/shares in order to obtain probate which is excellent news.

    You're quite right about the deadline of end Feb, not March! Thank you.

    I've been through all entries for the past 7 and a bit years and it doesn't look too bad from the PET perspective. Carrying over from one year to the next deals with some of it; it's just the last year when we're relying on carrying forward two years but we're quite sanguine about not being allowed exemptions on transfers for that year.

    Bless mum, she made sure we benefitted as much as possible over all these years.

    MumOf2 x
    Originally posted by MumOf2
    Use IHT400 Calculation to work out what tax is due now (ie the amount you normally pay at the same time as the probate application) and the amount that can be paid by installments:
    https://www.gov.uk/government/publications/inheritance-tax-inheritance-tax-account-iht400

    When the time comes, use the IHT Interest Calculator to work out the amount of interest you will have to send with each payment made after 1st March 2000.
    The full IHT balance is due when the house is sold you cannot continue to pay by installments once the asset is sold.
    http://www.hmrc.gov.uk/tools/inheritancetax/interest-rate-calculator.htm
    The interest rate charged at the moment is 3.25%pa and if you have overpaid interest will be paid back to you at 0.5%pa.
    • badger09
    • By badger09 27th Aug 19, 9:35 AM
    • 7,416 Posts
    • 6,951 Thanks
    badger09
    Thanks for your wise words, Badger. It was sort of expected because of mum's advanced years (90), but the end came suddenly and unexpectedly. It was all pretty traumatic as I drove 5 hours in the middle of the night to get here but just missed by 5 minutes because of road closures on the way. What a dreadful night it was for all of us.

    MumOf2
    x
    Originally posted by MumOf2
    Sort of similar circumstances here. My sister was 80 and had undergone back surgery which had gone well. I was supposed to be travelling (200 miles) to look after her after discharge so hadn't visited hospital. She suddenly deteriorated overnight & I was unable to travel due to road & rail closures (early March 2018) and my niece (also 200 miles but different direction) arrived very shortly after she died. Not entirely unexpected, but we were both devastated we couldn't be with her. It gave me some comfort to carry out her last wishes.

    Look after yourself.
    • MumOf2
    • By MumOf2 29th Aug 19, 1:45 AM
    • 562 Posts
    • 958 Thanks
    MumOf2
    Thanks, Tom and Badger.

    MumOf2
    x
    MumOf4
    Quit Date: 20th November 2009, 7pm

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