IHT advice about gifted money. Who pays?

Neither the £3K a year nor the taper relief apply in your case. The tax is due on £60K. The £3K applies to one gift, and is not an allowance against higher sums. Taper relief only applies if gifts in one year exceed the nil rate band, not on lesser sums.

My understanding is that the estate pays but I wouldn't be 100% confident of that.

Ichael_T_C wrote: »

My Mum passed away on 30th September 2012. She gave me a cash gift of £60K on 7th December 2009 expecting herself to survive for 7 years. Unfortunately this was not the case.

As I understand it - according to the HMRC rules - I am allowed an allowance of £3K per year cash gifts which is exempt from tax. If the gift giver survives for over 3 years then HMRC offers more generous taper relief. Mum died in year 3.

Because my Mum did not survive for 7 years, is it my personal responsibility to payback 40% IHT on the remaining £54K (less 2 years x £3K) or is it the estate liable to pay back 40% IHT on the £54K?

My brother and I are sole executors and also sole beneficiaries of the estate and there is enough money in the estate (valued at approx £1,000,000) to pay the tax on this if necessary.

I am concerned that I may have to personally pay the tax on this. My Mum would not have wanted me to be out of pocket.

Presuming that your Mum didn't make any other cash gifts in either 2009/10 or 2008/9, then £6,000 of the gift will be exempt for IHT purposes (£3k for tax year 2009/10 and another £3k carried forward from the previous tax year). The remaining £54,000 will be a potentially exempt transfer (PET).

As your Mum died within 3 years of the gift, then taper relief will not apply. There is therefore IHT of £21,600 (54,000 * 40%) owing on the remainder.

The estate will pay the IHT on the gift. The only time the donee has to pay, is if the estate is unable to pay. It doesn't sound like this is the case.

Quote from HMRC: If someone gives you a gift and they do not survive for seven years after making the gift, you would only be liable to pay Inheritance Tax on that gift if the value of the estate - including the gift - is over the Inheritance Tax threshold (£325,000 in 2012-13 tax year) and there is not enough money in the estate to pay the Inheritance Tax.
http://www.hmrc.gov.uk/inheritancetax/paying-iht/who-pays.htm

cte1111 wrote: »

I'm sorry but that is completely contrary to my understanding of the IHT rules and indeed HMRC's own guidelines.

The reason that taper relief does not apply is because the donor did not survive for 3 years after the gift. The £3k per year will apply.

But even with a longer period taper relief would still not apply. It only comes into play if the gift (along with any others) exceeds the nil rate band.

If you die between three and seven years after making a gift, and the total value of gifts that you made is over the threshold, any Inheritance Tax due on the gift is reduced on a sliding scale. This is known as 'Taper Relief'.

The only gift we know about is this £60K. There may of course have been others.


Pass on the £3K a year. Can't find an example either way.

We all seem to be in agreement about the estate paying.

Ichael_T_C wrote: »

It's crucial that I find out who is responsible for the repayment of tax as it is going to be a lot of money - does anyone out there know categorically? Or know anyone else to ask?

Ask a solicitor.

It's a £1m estate, so the executors have sufficient funds to afford some proper professional advice. Engage a solicitor to complete the IHT return.