Gifts and IHT

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Hi all,
my dad left £1,000 to each of his eight grandchildren 2 years before he died. It was a gift for each.

The solicitor says we will have to pay inheritance tax on it - will that be 40% of each £1,000 or is it taken as a collective amount - £8,000 and IHT charged just on the remaining £5,000?

Thanks in anticipation!
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  • frugalmacdugal
    frugalmacdugal Posts: 10,077 Forumite
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    Hi,


    sorry, don't understand the '£8,000 and IHT charged just on the remaining £5,000?', tax is only due on estates over £325000.
  • Savvy_Sue
    Savvy_Sue Posts: 46,028 Forumite
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    Also iht is usually paid by the estate before the bequests are paid out. What wording was used?
    Signature removed for peace of mind
  • 74jax
    74jax Posts: 7,923 Forumite
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    Why just 5k?

    The recipient doesn't pay this, it usually comes from the estate.
    Forty and fabulous, well that's what my cards say....
  • getmore4less
    getmore4less Posts: 46,882 Forumite
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    why?

    Is the estate a large one.

    if they were the only gifts in the last 3 years then they can use 2 £3k exemptions leaving £2k that reduces the nil rate band to £323k

    Then the estate pay tax using that allowance.


    (the £5k is probably using just 1 £3k annual exemption)
  • Keep_pedalling
    Keep_pedalling Posts: 16,634 Forumite
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    Any IHT due comes out of the estate, the only time it has to be paid by the recipients of gifts is if so much has been given away that there is insufficient assets left in the estate to pay the tax.

    If they were the only gifts given in that tax year then £3000 of it will be exempt, £6000 if the previous year’s exemption can be carried over because no gifts were made in that year either.
  • xylophone
    xylophone Posts: 44,422 Forumite
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    my dad left £1,000 to each of his eight grandchildren 2 years before he died. It was a gift for each.

    Do you mean that two years before he died, your grandfather gave each of his grandchildren £1000?

    He had a gift allowance of £3000 in the year he gave the money and could carry forward £3000 from the year before if he had not used it then.


    Or do you mean that in a will made two years before he died, your grandfather left each of his eight grandchildren £1000?

    Are you saying that the value of your grandfather's estate exceeds his nil rate band (plus any transferable nil rate band he may have had, plus any family home allowance/transferable family home allowance)?
  • SeniorSam
    SeniorSam Posts: 1,670 Forumite
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    You have not said, but if your Mum died first and left everything to your Dad, when Dad died, there was an IHT allowance of £325 each (£650,000). A;so if they owned a home, then there would also be Residence allowance, so the estate would need to be large to have IHT to pay, If any solicitor can not explain to their clients how taxes work, then he/she should not be in practice.
    I'm a retired IFA who specialised for many years in Inheritance Tax, Wills and Trusts. I cannot offer advice now, but my comments here and on Legal Beagles as Sam101 are just meant to be helpful. Do ask questions from the Members who are here to help.
  • Woolington
    Woolington Posts: 126 Forumite
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    edited 19 August 2019 at 1:37PM
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    Hi all, sorry! I didn't know about the £3K x 2 allowance carried over to the next tax year so I can see that my question won't make sense...

    (the £5k is probably using just 1 £3k annual exemption) yes! so will the 40% be only on £2,000?

    You have not said, but if your Mum died first and left everything to your Dad, when Dad died, there was an IHT allowance of £325 each (£650,000). A;so if they owned a home, then there would also be Residence allowance, so the estate would need to be large to have IHT to pay,

    yes, this is the scenario! The solicitor had managed to get everything under the £650,000 tax threshold, it's a shame the grandkids gifts will be taxed - so am I to understand that the tax comes out of the estate, evenly between the beneficiaries - I only ask because my brother doesn't have any children.

    Thank you for making sense of my non sensical question!
  • Keep_pedalling
    Keep_pedalling Posts: 16,634 Forumite
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    Woolington wrote: »
    Hi all, sorry! I didn't know about the £3K x 2 allowance carried over to the next tax year so I can see that my question won't make sense...

    (the £5k is probably using just 1 £3k annual exemption) yes! so will the 40% be only on £2,000?

    You have not said, but if your Mum died first and left everything to your Dad, when Dad died, there was an IHT allowance of £325 each (£650,000). A;so if they owned a home, then there would also be Residence allowance, so the estate would need to be large to have IHT to pay,

    yes, this is the scenario! The solicitor had managed to get everything under the £650,000 tax threshold, it's a shame the grandkids gifts will be taxed - so am I to understand that the tax comes out of the estate, evenly between the beneficiaries - I only ask because my brother doesn't have any children.

    Thank you for making sense of my non sensical question!

    No those gifts will not be taxed, any IHT comes out of the residual estate not from gifts made 2 years ago.

    What about the residential nil rate band? Presuming with that size of estate he owned a home which adds another £300k of nil rate band.
  • Woolington
    Woolington Posts: 126 Forumite
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    Hi,
    sorry! I'm really confused about IHT. The 8 x £1,000 gifts were to be 'incorporated into the IHT forms.' (solicitor)

    The solicitor reckons to have got away with no IHT to pay using my mum's nil rate band allowance as well as my dad's...

    So they won't come after the children!
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