Gift from a lottery winner - who might have to pay the inheritance tax?
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inittogether
Posts: 31 Forumite
in Cutting tax
Hello everyone. I just can't find a clear answer to this, even on HMRC's pages.
I've received a nice amount (more than £325,000, less than £1M) from a generous lottery winner friend. I understand the 7-year inheritance rule, and that there will never be any IHT to pay on it if they survive more than 7 years from now (we both hope they do!). There's a sliding scale of tax rates, after three years, all the way down to nil after 7 years. We get that.
But, who does HMRC come after for that IHT, if any is due? Is it just the estate at the time, or what's left of it? Or is it the recipients of the various gifts? There are clear bank records of where money left and where it went to. So it could be done. But, are the recipients of gifts ever responsible for IHT, or is it just that the gift is notionally added back to the original owner's estate to calculate the IHT due on their estate? What happens if the estate at the time of death cannot cover the IHT due on all those long gone gifts?
Do I need to keep 40% to one side in case there's a bill in the next three years?
Thanks for any help and pointers to official gov.uk HMRC links.
I've received a nice amount (more than £325,000, less than £1M) from a generous lottery winner friend. I understand the 7-year inheritance rule, and that there will never be any IHT to pay on it if they survive more than 7 years from now (we both hope they do!). There's a sliding scale of tax rates, after three years, all the way down to nil after 7 years. We get that.
But, who does HMRC come after for that IHT, if any is due? Is it just the estate at the time, or what's left of it? Or is it the recipients of the various gifts? There are clear bank records of where money left and where it went to. So it could be done. But, are the recipients of gifts ever responsible for IHT, or is it just that the gift is notionally added back to the original owner's estate to calculate the IHT due on their estate? What happens if the estate at the time of death cannot cover the IHT due on all those long gone gifts?
Do I need to keep 40% to one side in case there's a bill in the next three years?
Thanks for any help and pointers to official gov.uk HMRC links.
“Operator! Give me the number for 999!"
:cool2::question:
:cool2::question:
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Comments
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Any IHT due initially comes from the estate. If the estate can't pay what is due it will come from those who have received eligible gifts from the estate.
Edit : here's a link
https://www.gov.uk/tax-property-money-shares-you-inherit0 -
One way 'round it would be to write a lottery syndicate contract...0
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Thanks uknick.
Yes i read those. And these here https://www.gov.uk/inheritance-tax/gifts and here https://www.gov.uk/inheritance-tax.
It still seems a bit loose. I'm not seeing the certainty we expect from death and taxes!
What if the estate can cover the tax, but that leaves nothing left of the estate? Doesn't seem fair to the new beneficiary.
What if only some of the giftees can be traced at the time?
What if the banks go under and there are no bank records to trace who received gifts?
What if the person (before they die) withdraws large amounts of cash and hands it to homeless people, or any strangers. How would the taxman trace them then?
I just want to get this clear for me and the other lucky people who've received gifts. I will lock a percentage away, but don't want to if I don't have to. And I don't want anyone else getting caught out either.
Cheers.“Operator! Give me the number for 999!"
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I think you should suggest to the lottery winner that they take some inheritance tax planning advice to ensure that those they have generously given a share to aren't landed with an unexpected bill, and that their beneficiaries get what the winner wants them to.0
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Hmm. Might seem a bit ungrateful, and !!!!!sh to bring up their death. I just expected the HMRC rules to be clear.“Operator! Give me the number for 999!"
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You would definitely be responsible if there was nothing left in the estate.
Say everything was given away just before someone worth many millions died - do you see the taxman saying that's fine nothing left in the estate so nothing due - if that was allowed it would almost mean the end of IHT with people giving everything away so there wouldn't be a tax bill.
A BBC article from a couple of years ago (the amounts may have changed since then)
https://www.bbc.co.uk/news/business-36014533Usually it is the estate which is liable for IHT. However if you are the recipient of a gift, and the giver has died within 7 years, and has already given away more than £325,000, you could be liable to pay IHT yourself.0 -
The sliding scale only applies to total gifts over £325k and then only to the part of the gifts over that amount.
Normally the estate pays you would only be chased if the giver was silly enough to give too much away. If the giver is in good health they can take out relatively cheap term life insurence that will cover any tax due on gifts should they die prematurely.0 -
inittogether wrote: »Hmm. Might seem a bit ungrateful, and !!!!!sh to bring up their death. I just expected the HMRC rules to be clear.
The rules are clear. But as with a lot of things in life, particularly tax, it is the implementation that can be confusing.
The tax rule book is big enough as it is, over 17k pages in 2015, just imagine how big it would be if it tried to cover every "what if" situation.0 -
Thanks all.“Operator! Give me the number for 999!"
:cool2::question:0
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