Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Anonymous,MyNameIsUrl,6Tricia,staffordian, for Donating to support the site

Cash Gifts

Practical Issues
TaurusTheBull
Lemon Pip
Posts: 84
Joined: November 4th, 2016, 11:41 pm
Has thanked: 1 time
Been thanked: 173 times

Cash Gifts

#448854

Postby TaurusTheBull » October 9th, 2021, 12:02 am

Hi,

I am thinking about giving some money to family members as a one-off payment. Can this be extended outside the family, for example to god children, without raising suspicions of money-laundering?

I expect to live more than another 7 years.

Is there an upper limit to this amount such that no tax is paid, and do HMRC require written proof from the recipients (as well as me) that the money was a gift?

I am aware of the £3,000 annual limit, and am not interested in that.

It's surprising how hard it is to find an answer to such a theoretically simple quesrion. Apologies if this has been covered before.

Thanks

Taurus

Lootman
The full Lemon
Posts: 11247
Joined: November 4th, 2016, 3:58 pm
Has thanked: 144 times
Been thanked: 2493 times

Re: Cash Gifts

#448858

Postby Lootman » October 9th, 2021, 12:19 am

TaurusTheBull wrote:I am thinking about giving some money to family members as a one-off payment. Can this be extended outside the family, for example to god children, without raising suspicions of money-laundering?

I expect to live more than another 7 years.

Is there an upper limit to this amount such that no tax is paid, and do HMRC require written proof from the recipients (as well as me) that the money was a gift?

What you are contemplating, if I understand correctly, is making gifts from capital with the idea that after 7 years any IHT obligation goes away. Assuming that you reserve no benefit from those gifts then the answer is:

1) There is no upper limit on the amount of the gift, and as long as you live 7 more years, you are home free.

2) The gift can be to anyone regardless of relationship

3) No written proof is required. A simple statement that it was an unconditional gift would normally be deemed sufficient. If challenged then the onus would be on HMRC to prove that you reserved benefit, and not on you to prove that you did not, which in any event would be an impossible burden.

As an aside you mentioned that this would be a cash gift. Cash gifts of six or seven figures might attract undue scrutiny, assuming of course that they are detected, which would be difficult. The taxman hates cash.

Howard
Lemon Quarter
Posts: 1762
Joined: November 4th, 2016, 8:26 pm
Has thanked: 613 times
Been thanked: 758 times

Re: Cash Gifts

#448860

Postby Howard » October 9th, 2021, 12:29 am

Yes, in my experience. Obviously you might be asked to explain where the money has come from.

I know you haven't suggested this as a reason but, for example, helping a family member in a house purchase, the solicitor handling the transaction will ask some questions but they should be straightforward to answer. Years ago HMRC did ask me some questions about a donation. They were happy with the answers as the source of the funds was easily explained (and obviously correlated with tax returns).

So it is definitely worth keeping a record of the source of funds. Presumably you would be giving the money by bank transfer or similar - not in a brown envelope! :)

Others with a more legal/tax background might be able to add more.

regards

Howard

TaurusTheBull
Lemon Pip
Posts: 84
Joined: November 4th, 2016, 11:41 pm
Has thanked: 1 time
Been thanked: 173 times

Re: Cash Gifts

#448863

Postby TaurusTheBull » October 9th, 2021, 2:34 am

Thanks for the replies.

Cash was a poor choice of words. I would most likely do bank transfers by cheque, it has to be totally transparent. They wouldn't be 6 figures but may well be 5.

I am surprised that such gifts are allowed to anyone, and at any level. Wouldn't that encourage money laundering, not to mention allowing mafia-type protection rackets to flourish?

I have no problem with HMRC asking questions because I have nothing to hide. It just seems a better idea to me to pass on some "cash" at a time when I am still confident of living at least 7 more years (touchwood), not to mention finessing the future IHT implications.

Cheers

Taurus

scrumpyjack
Lemon Quarter
Posts: 2584
Joined: November 4th, 2016, 10:15 am
Has thanked: 234 times
Been thanked: 1167 times

Re: Cash Gifts

#448879

Postby scrumpyjack » October 9th, 2021, 9:29 am

Just to be clear such gifts do not need any disclosure to HMRC and there is no box on the tax return asking for such information.
The sensible thing to do is to give the recipient a letter saying that it a gift. One used to use language such as 'I give this out of my natural love and affection for you...' to make it clear that no consideration was involved, it was not a payment for a service etc and there is no reservation of benefit.

If you are making the gift out of income so that you do not need to live 7 years for it to be tax free you should leave further evidence for your executors that your surplus income, taking one year with another, was sufficient to cover it and the gift be made in at least two payments to indictate it was not a one off but was part of normal expenditure etc etc.

Howard
Lemon Quarter
Posts: 1762
Joined: November 4th, 2016, 8:26 pm
Has thanked: 613 times
Been thanked: 758 times

Re: Cash Gifts

#448944

Postby Howard » October 9th, 2021, 1:52 pm

TaurusTheBull wrote:Thanks for the replies.

Cash was a poor choice of words. I would most likely do bank transfers by cheque, it has to be totally transparent. They wouldn't be 6 figures but may well be 5.

I am surprised that such gifts are allowed to anyone, and at any level. Wouldn't that encourage money laundering, not to mention allowing mafia-type protection rackets to flourish?

I have no problem with HMRC asking questions because I have nothing to hide. It just seems a better idea to me to pass on some "cash" at a time when I am still confident of living at least 7 more years (touchwood), not to mention finessing the future IHT implications.

Cheers

Taurus


It's a great idea. I've looked at gifts as fun investments. Unlike some of my shares, they never go down! And some have paid wonderful "dividends" especially looking back ten years or more.

regards

Howard

Lootman
The full Lemon
Posts: 11247
Joined: November 4th, 2016, 3:58 pm
Has thanked: 144 times
Been thanked: 2493 times

Re: Cash Gifts

#448953

Postby Lootman » October 9th, 2021, 2:05 pm

TaurusTheBull wrote:Cash was a poor choice of words. I would most likely do bank transfers by cheque, it has to be totally transparent. They wouldn't be 6 figures but may well be 5.

I am surprised that such gifts are allowed to anyone, and at any level. Wouldn't that encourage money laundering, not to mention allowing mafia-type protection rackets to flourish?

Large gifts are not a problem as long as the motives for doing so are honourable. Money transfers involving criminal behaviour would most likely be in some anonymous form such as cash, diamonds or (these days) crypto. Since you will be using bank transfers everything will be documented and recorded, so there is nothing to worry about. And as Scrumpy notes, there is no obligation to report such gifts.

I made cash gifts (by cheque) of about 150K to each of my kids some years ago so they could each buy their first home. In fact the seven years is almost up and may do so again. No problems arose at all.

TaurusTheBull
Lemon Pip
Posts: 84
Joined: November 4th, 2016, 11:41 pm
Has thanked: 1 time
Been thanked: 173 times

Re: Cash Gifts

#449037

Postby TaurusTheBull » October 10th, 2021, 1:19 am

"I made cash gifts (by cheque) of about 150K to each of my kids some years ago so they could each buy their first home. In fact the seven years is almost up and may do so again. No problems arose at all."

Now you've confused me. I would like the option of making more than one gift to the same people, and assumed this could be done at any time if HMRC are not interested. You seem to imply that one gift must last 7 years of survival (to be tax free) before another can be made to the same person. I doubt this is the case but that's the way it has come across.

Regards
Taurus

scrumpyjack
Lemon Quarter
Posts: 2584
Joined: November 4th, 2016, 10:15 am
Has thanked: 234 times
Been thanked: 1167 times

Re: Cash Gifts

#449041

Postby scrumpyjack » October 10th, 2021, 8:42 am

TaurusTheBull wrote:"I made cash gifts (by cheque) of about 150K to each of my kids some years ago so they could each buy their first home. In fact the seven years is almost up and may do so again. No problems arose at all."

Now you've confused me. I would like the option of making more than one gift to the same people, and assumed this could be done at any time if HMRC are not interested. You seem to imply that one gift must last 7 years of survival (to be tax free) before another can be made to the same person. I doubt this is the case but that's the way it has come across.

Regards
Taurus


You can make as many gifts as you want at any time with any interval. There are no limits.
The only point here is whether your estate might end up paying IHT on gifts made before you die. Hence the 7 year point. But that in no way prevents you making the gifts in the first place!

mutantpoodle
Lemon Slice
Posts: 576
Joined: November 7th, 2016, 4:21 pm
Has thanked: 268 times
Been thanked: 55 times

Re: Cash Gifts

#449043

Postby mutantpoodle » October 10th, 2021, 8:48 am

the seven year requirement for no IHT applies from date of EACH gift

if you make many gifts (regardless of who to) then you have numerous periods of 7 years running


of course watch out for the council claiming deliberate deprivation of assets when/if care home required

Gengulphus
Lemon Quarter
Posts: 4215
Joined: November 4th, 2016, 1:17 am
Been thanked: 2536 times

Re: Cash Gifts

#449049

Postby Gengulphus » October 10th, 2021, 10:07 am

TaurusTheBull wrote:"I made cash gifts (by cheque) of about 150K to each of my kids some years ago so they could each buy their first home. In fact the seven years is almost up and may do so again. No problems arose at all."

Now you've confused me. I would like the option of making more than one gift to the same people, and assumed this could be done at any time if HMRC are not interested. You seem to imply that one gift must last 7 years of survival (to be tax free) before another can be made to the same person. I doubt this is the case but that's the way it has come across.

Your doubts are justified - you can indeed make more gifts within the 7 years, and each such gift that you make has its own 7-year period.

There is however an issue with making such gifts totalling more than the IHT allowance over a 7-year period. It's to do with how the IHT is assessed and collected. If the gifts you've made in the 7 years before your death total the IHT allowance or less, it's purely a matter for your estate to deal with: the gifts use up part or all of your IHT allowance, leaving less of it to be used by the assets you still owned when you died - and so the IHT bill to be paid by your estate is basically increased by 40% of the amount of the gifts, compared with what it would have been if all of them had been made 7+ years before you died. So basically it's all a matter to be settled between your executor(s) and HMRC.

But if the gifts you've made in the 7 years before your death total more than the IHT allowance, it gets more complicated. Your IHT allowance can only use up the first IHT allowance's worth of gifts you made in the 7 years before your death (see below about exactly what that means), and any gifts that aren't used up against the IHT allowance have their IHT assessed against their recipients (and collected from them, though if HMRC cannot collect from them, they can collect from the estate). So basically, if you make gifts totalling more than the IHT allowance in a 7-year period, there is a risk that settling your IHT will become a more complicated affair, involving not just your executor(s) and HMRC, but also the recipients of the gifts. And to mitigate the risk of the recipients facing an unexpected and potentially large IHT bill long after they've spent their gifts, you'll probably want to warn them about that risk - so that they know to keep an appropriate part of the gift in reserve against that risk and not spend it until the risk is over.

There is also a 'taper relief' that can come into play in those circumstances (i.e. you giving gifts totalling more than the IHT in the 7 years before your death, so that the recipients of some or all of the gifts become liable to IHT rather than your estate / executor(s)). This says that if the gift was given at least 3 years before death but less than 4, the IHT due is reduced to 80% of what it would otherwise be; if at least 4 years before death but less than 5, to 60% of what it would otherwise be; if at least 5 years before death but less than 6, to 40% of what it would otherwise be; and if at least 6 years before death (and less than 7, since the gift would be entirely exempt if given at least 7 years before death), to 20% of what it would otherwise be.

On the detail of exactly how the gifts are used against the IHT allowance, it is almost literally the first gifts you made in those 7 years. I.e. when it comes to deciding exactly which gifts are used (which can matter because of the taper relief), gifts made on earlier dates are used before those made on later dates. The one exception is that if you make multiple gifts on the same day, and some but not all of them need to be used against the IHT allowance, the time of day that they were made doesn't get taken into account. Instead, they're used in proportion to their sizes - e.g. if you make gifts of £10k, £20k and £30k on the same day, and earlier gifts have already used up all but £36k of your IHT allowance, then that last £36k of the IHT allowance uses £36k/(£10k+£20k+£30k) = 60% of each of them, leaving gifts of £4k, £8k and £12k to have the IHT paid by the recipients. But if e.g. the gift of £30k had been made one day later, the last £36k of the IHT allowance would use up the entirety of the £10k and £20k gifts and £6k of the £30k gift - so the recipients of the first two wouldn't face an IHT bill and the recipient of the third would face an IHT bill on £24k. So if you want to make gifts totalling more than the IHT allowance in a 7-year period to multiple recipients, and to treat those recipients entirely equally, be aware that you'll probably want to take care about the exact dates of the gifts.

Note that because those rules say to use the IHT allowance first against the oldest gifts, which would benefit most from the taper relief, they basically minimise the effect of the taper relief. One would prefer to use the IHT allowance against the newest gifts first, so that the gift recipients would get as much taper relief as possible - but unlike the situation for many other tax allowances that can be used in the way that is most beneficial to the taxpayer, one's estate and the gift recipients don't get any choice about how it is used. I'd guess that this is because multiple taxpayers are involved, giving any such choice could lead to hard-to-resolve conflicts of interest...

Gengulphus

ursaminortaur
Lemon Half
Posts: 6224
Joined: November 4th, 2016, 3:26 pm
Has thanked: 91 times
Been thanked: 417 times

Re: Cash Gifts

#449058

Postby ursaminortaur » October 10th, 2021, 11:04 am

Gengulphus wrote:
There is however an issue with making such gifts totalling more than the IHT allowance over a 7-year period. It's to do with how the IHT is assessed and collected. If the gifts you've made in the 7 years before your death total the IHT allowance or less, it's purely a matter for your estate to deal with: the gifts use up part or all of your IHT allowance, leaving less of it to be used by the assets you still owned when you died - and so the IHT bill to be paid by your estate is basically increased by 40% of the amount of the gifts, compared with what it would have been if all of them had been made 7+ years before you died. So basically it's all a matter to be settled between your executor(s) and HMRC.

But if the gifts you've made in the 7 years before your death total more than the IHT allowance, it gets more complicated. Your IHT allowance can only use up the first IHT allowance's worth of gifts you made in the 7 years before your death (see below about exactly what that means), and any gifts that aren't used up against the IHT allowance have their IHT assessed against their recipients (and collected from them, though if HMRC cannot collect from them, they can collect from the estate). So basically, if you make gifts totalling more than the IHT allowance in a 7-year period, there is a risk that settling your IHT will become a more complicated affair, involving not just your executor(s) and HMRC, but also the recipients of the gifts. And to mitigate the risk of the recipients facing an unexpected and potentially large IHT bill long after they've spent their gifts, you'll probably want to warn them about that risk - so that they know to keep an appropriate part of the gift in reserve against that risk and not spend it until the risk is over.


Gengulphus,

I hate to doubt one of your answers but are you sure about this ? My understanding is that HMRC would always try to get any IHT to do with gifts which were within the 7 year period from your estate first rather than from the recipients if it exceeded the IHT allowance. That is obviously a lot simpler for HMRC as they don't have to deal with a lot of people - some of whom may have moved abroad in the meantime meaning that HMRC may have difficulty getting the money.

Hence, under my understanding, you just need to have enough money in your estate to cover the 40% IHT for all your own assets + the gifts. The amount for the gifts, ignoring the IHT allowance, would be 40% of the gift amount + (since you have to have the funds to cover it in your estate) 40% of that amount call it A1 + (to cover that amount) 40% of A1 (call it A2) + (to cover that amount) 40% of A2 (call it A3) + .... and if you have that money they will then take it from your estate and not bother the gift recipients.

scrumpyjack
Lemon Quarter
Posts: 2584
Joined: November 4th, 2016, 10:15 am
Has thanked: 234 times
Been thanked: 1167 times

Re: Cash Gifts

#449071

Postby scrumpyjack » October 10th, 2021, 11:46 am

Whilst the ultimate legal liability for the IHT seems to be with the gift recipient, the executor will not be able to get probate until all the IHT is paid (apart from that on property which can be paid in installments). Also the executor would then need to recover the IHT from the gift recipients (unless the Will stipulate the estate should pay it) in order to pay the residual beneficiaries their due. It could get very messy and perhaps the nominated executor would be better off refusing the appointment!?

Still the OP did not ask about any of this 7 year stuff so it is all rather OT

Lootman
The full Lemon
Posts: 11247
Joined: November 4th, 2016, 3:58 pm
Has thanked: 144 times
Been thanked: 2493 times

Re: Cash Gifts

#449079

Postby Lootman » October 10th, 2021, 12:15 pm

TaurusTheBull wrote:"I made cash gifts (by cheque) of about 150K to each of my kids some years ago so they could each buy their first home. In fact the seven years is almost up and may do so again. No problems arose at all."

Now you've confused me. I would like the option of making more than one gift to the same people, and assumed this could be done at any time if HMRC are not interested. You seem to imply that one gift must last 7 years of survival (to be tax free) before another can be made to the same person. I doubt this is the case but that's the way it has come across.

As others have pointed out, you can make as many gifts as you like. However I wanted to keep the total amount of any gifts below the IHT nil rate band amount. Since I have two children then my two gifts of 150K are a little under the nil rate band of 325K.

That is why I will wait 7 years before making more gifts, probably of a similar amount. The 7 years is up for me in summer 2022.

This strategy is to minimise the risk that HMRC might go after the gift recipients in the event of my demise. It also ensures that the gifts are maximised earlier than drip-feeding the transfers.

Gengulphus
Lemon Quarter
Posts: 4215
Joined: November 4th, 2016, 1:17 am
Been thanked: 2536 times

Re: Cash Gifts

#449083

Postby Gengulphus » October 10th, 2021, 12:29 pm

ursaminortaur wrote:
Gengulphus wrote:There is however an issue with making such gifts totalling more than the IHT allowance over a 7-year period. It's to do with how the IHT is assessed and collected. If the gifts you've made in the 7 years before your death total the IHT allowance or less, it's purely a matter for your estate to deal with: the gifts use up part or all of your IHT allowance, leaving less of it to be used by the assets you still owned when you died - and so the IHT bill to be paid by your estate is basically increased by 40% of the amount of the gifts, compared with what it would have been if all of them had been made 7+ years before you died. So basically it's all a matter to be settled between your executor(s) and HMRC.

But if the gifts you've made in the 7 years before your death total more than the IHT allowance, it gets more complicated. Your IHT allowance can only use up the first IHT allowance's worth of gifts you made in the 7 years before your death (see below about exactly what that means), and any gifts that aren't used up against the IHT allowance have their IHT assessed against their recipients (and collected from them, though if HMRC cannot collect from them, they can collect from the estate). So basically, if you make gifts totalling more than the IHT allowance in a 7-year period, there is a risk that settling your IHT will become a more complicated affair, involving not just your executor(s) and HMRC, but also the recipients of the gifts. And to mitigate the risk of the recipients facing an unexpected and potentially large IHT bill long after they've spent their gifts, you'll probably want to warn them about that risk - so that they know to keep an appropriate part of the gift in reserve against that risk and not spend it until the risk is over.

I hate to doubt one of your answers but are you sure about this ? My understanding is that HMRC would always try to get any IHT to do with gifts which were within the 7 year period from your estate first rather than from the recipients if it exceeded the IHT allowance. That is obviously a lot simpler for HMRC as they don't have to deal with a lot of people - some of whom may have moved abroad in the meantime meaning that HMRC may have difficulty getting the money.

Hence, under my understanding, you just need to have enough money in your estate to cover the 40% IHT for all your own assets + the gifts. The amount for the gifts, ignoring the IHT allowance, would be 40% of the gift amount + (since you have to have the funds to cover it in your estate) 40% of that amount call it A1 + (to cover that amount) 40% of A1 (call it A2) + (to cover that amount) 40% of A2 (call it A3) + .... and if you have that money they will then take it from your estate and not bother the gift recipients.

From https://www.gov.uk/inheritance-tax/gifts, the last section ("How Inheritance Tax on a gift is paid"), with my bold:

Any Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift.

And from https://www.gov.uk/hmrc-internal-manual ... /ihtm10821:

The transferee is accountable, IHTA84/S216 (1)(bb). This is because the person who receives the gift is liable for any tax on a PET that proves to be a chargeable transfer. In strictness, the transferee is required to specify all appropriate property (IHTM10802) received and the value of that property. The account to be used is the IHT 100. The time limit for delivering the account is 12 months from the end of the month in which the transferor’s death occurred, IHTA84/S216 (6)(aa).

For deaths on or after 9 March 1999, the deceased’s personal representatives must also include any gifts made by the deceased within 7 years of death in theIHT 400, FA99/S105 (1). This means that in most cases you will already have information about PETs made by the deceased and in practice you will only need to ask a transferee for an IHT 100 in exceptional circumstances (IHTM10503).

That seems quite clear that it's the gift recipient who is liable to pay the IHT. It does indicate that the gift recipient won't normally be expected to make an IHT return - just to pay the IHT assessed on the gifts they received. But that does mean that the gift recipient is involved.

That is to do with who is formally required to pay the tax, and it may well be that HMRC have informal procedures for dealing with the situation informally, such as asking the executor(s) to pay it from the estate on behalf of the gift recipients - after which the executor(s) would presumably calculate what each beneficiary of the will would have received if those 'on behalf of gift recipient' payments had not been made, then pay each of those beneficiaries that amount minus any of those payments that were made on the beneficiary's behalf. But I can see plenty of reasons why the executor(s) might not agree to that, such as that it would mean that they had to 'pay a negative amount' to a beneficiary or indeed someone who isn't a beneficiary at all... The executor(s) would want HMRC to bear any costs of collecting from such people rather than the estate bearing them, and indeed would I think have a duty to the beneficiaries collectively not to reduce the value of the estate by accepting unnecessary costs.

If HMRC cannot collect from a gift recipient, due e.g. to them simply not having the assets to pay it or having moved abroad to a country whose legal system isn't cooperative about such debt collection, I think I've read somewhere that HMRC can fall back on claiming it from the estate or possibly even other gift recipients, but at least formally, that's their second (or later) recourse for collecting the tax, not the first. I'm afraid all I have on that is my memory of something I read years ago, not any memory of where I read it, and I haven't found any links or other references about it with a quick look (which is all I'm willing to put into it right now). So that's basically 'hearsay' evidence which I'm offering for what it's worth, not proper evidence.

So basically, yes, I am sure about what I said, at least as far as the legal responsibilities are concerned. In practice, HMRC might well try to streamline things, and indeed might well frequently succeed in doing so, but I've no practical experience of such situations and so cannot comment on what they actually try in practice. I do know that in the (very unlikely) event that I were to act as executor again, for someone who had made such large gifts, I would be decidedly cautious about agreeing to any HMRC request to pay IHT from the estate on behalf of a gift recipient who is actually responsible for paying it themselves.

Gengulphus

ursaminortaur
Lemon Half
Posts: 6224
Joined: November 4th, 2016, 3:26 pm
Has thanked: 91 times
Been thanked: 417 times

Re: Cash Gifts

#449088

Postby ursaminortaur » October 10th, 2021, 12:53 pm

Gengulphus wrote:
ursaminortaur wrote:
Gengulphus wrote:There is however an issue with making such gifts totalling more than the IHT allowance over a 7-year period. It's to do with how the IHT is assessed and collected. If the gifts you've made in the 7 years before your death total the IHT allowance or less, it's purely a matter for your estate to deal with: the gifts use up part or all of your IHT allowance, leaving less of it to be used by the assets you still owned when you died - and so the IHT bill to be paid by your estate is basically increased by 40% of the amount of the gifts, compared with what it would have been if all of them had been made 7+ years before you died. So basically it's all a matter to be settled between your executor(s) and HMRC.

But if the gifts you've made in the 7 years before your death total more than the IHT allowance, it gets more complicated. Your IHT allowance can only use up the first IHT allowance's worth of gifts you made in the 7 years before your death (see below about exactly what that means), and any gifts that aren't used up against the IHT allowance have their IHT assessed against their recipients (and collected from them, though if HMRC cannot collect from them, they can collect from the estate). So basically, if you make gifts totalling more than the IHT allowance in a 7-year period, there is a risk that settling your IHT will become a more complicated affair, involving not just your executor(s) and HMRC, but also the recipients of the gifts. And to mitigate the risk of the recipients facing an unexpected and potentially large IHT bill long after they've spent their gifts, you'll probably want to warn them about that risk - so that they know to keep an appropriate part of the gift in reserve against that risk and not spend it until the risk is over.

I hate to doubt one of your answers but are you sure about this ? My understanding is that HMRC would always try to get any IHT to do with gifts which were within the 7 year period from your estate first rather than from the recipients if it exceeded the IHT allowance. That is obviously a lot simpler for HMRC as they don't have to deal with a lot of people - some of whom may have moved abroad in the meantime meaning that HMRC may have difficulty getting the money.

Hence, under my understanding, you just need to have enough money in your estate to cover the 40% IHT for all your own assets + the gifts. The amount for the gifts, ignoring the IHT allowance, would be 40% of the gift amount + (since you have to have the funds to cover it in your estate) 40% of that amount call it A1 + (to cover that amount) 40% of A1 (call it A2) + (to cover that amount) 40% of A2 (call it A3) + .... and if you have that money they will then take it from your estate and not bother the gift recipients.

From https://www.gov.uk/inheritance-tax/gifts, the last section ("How Inheritance Tax on a gift is paid"), with my bold:

Any Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift.

And from https://www.gov.uk/hmrc-internal-manual ... /ihtm10821:

The transferee is accountable, IHTA84/S216 (1)(bb). This is because the person who receives the gift is liable for any tax on a PET that proves to be a chargeable transfer. In strictness, the transferee is required to specify all appropriate property (IHTM10802) received and the value of that property. The account to be used is the IHT 100. The time limit for delivering the account is 12 months from the end of the month in which the transferor’s death occurred, IHTA84/S216 (6)(aa).

For deaths on or after 9 March 1999, the deceased’s personal representatives must also include any gifts made by the deceased within 7 years of death in theIHT 400, FA99/S105 (1). This means that in most cases you will already have information about PETs made by the deceased and in practice you will only need to ask a transferee for an IHT 100 in exceptional circumstances (IHTM10503).

That seems quite clear that it's the gift recipient who is liable to pay the IHT. It does indicate that the gift recipient won't normally be expected to make an IHT return - just to pay the IHT assessed on the gifts they received. But that does mean that the gift recipient is involved.

That is to do with who is formally required to pay the tax, and it may well be that HMRC have informal procedures for dealing with the situation informally, such as asking the executor(s) to pay it from the estate on behalf of the gift recipients - after which the executor(s) would presumably calculate what each beneficiary of the will would have received if those 'on behalf of gift recipient' payments had not been made, then pay each of those beneficiaries that amount minus any of those payments that were made on the beneficiary's behalf. But I can see plenty of reasons why the executor(s) might not agree to that, such as that it would mean that they had to 'pay a negative amount' to a beneficiary or indeed someone who isn't a beneficiary at all... The executor(s) would want HMRC to bear any costs of collecting from such people rather than the estate bearing them, and indeed would I think have a duty to the beneficiaries collectively not to reduce the value of the estate by accepting unnecessary costs.

If HMRC cannot collect from a gift recipient, due e.g. to them simply not having the assets to pay it or having moved abroad to a country whose legal system isn't cooperative about such debt collection, I think I've read somewhere that HMRC can fall back on claiming it from the estate or possibly even other gift recipients, but at least formally, that's their second (or later) recourse for collecting the tax, not the first. I'm afraid all I have on that is my memory of something I read years ago, not any memory of where I read it, and I haven't found any links or other references about it with a quick look (which is all I'm willing to put into it right now). So that's basically 'hearsay' evidence which I'm offering for what it's worth, not proper evidence.

So basically, yes, I am sure about what I said, at least as far as the legal responsibilities are concerned. In practice, HMRC might well try to streamline things, and indeed might well frequently succeed in doing so, but I've no practical experience of such situations and so cannot comment on what they actually try in practice. I do know that in the (very unlikely) event that I were to act as executor again, for someone who had made such large gifts, I would be decidedly cautious about agreeing to any HMRC request to pay IHT from the estate on behalf of a gift recipient who is actually responsible for paying it themselves.

Gengulphus


Ok thanks Gengulphus I obviously either misread or mis-remembered what I'd read on this in the past.

helfordpirate
Lemon Pip
Posts: 63
Joined: November 7th, 2016, 12:03 pm
Been thanked: 18 times

Re: Cash Gifts

#451001

Postby helfordpirate » October 18th, 2021, 1:27 pm

I know this is late to the discussion but couple of other factors to consider for those coming by later regarding gifts to children or others..

- while technically the liability for the failed PET beyond the IHT allowance is with the recipient, it is simple enough to put a clause in ones Will to say that any tax on failed PETs is to be paid by the estate. This offers welcome clarity to the executors if faced with this situation. See discussion here https://www.ft.com/content/e25e870b-845 ... 3d8f17af93
- if making multiple gifts at different times to different children, there may be a concern that one child may end up with more depending on timing of death, Again it is possible to insert a 'hotchpot' clause in a Will to say that lifetime gifts should be taken into account when sharing the residuary estate.
- if very large gifts are made after a Will has been made, it may be prudent to be clear in an accompanying letter that this is not intended to be a "portion" of their entitlement in the Will but is a separate gift.


Return to “Taxes (Practical)”

Who is online

Users browsing this forum: No registered users and 2 guests