Inheritance Tax - Useful 'Financial Gifts' articles

[ikethespike]

I presume that if a mother and/or father (married) choose to gift to their offspring from excess income, it must be undertaken on an individual basis and therefore individual calculations of income and expenditure are required for the IHT 403 forms. Another layer of complexity may arise if one spouse has a higher income than the other, possibly with different levels of expenditure, so not simply 50% of household income and expenditure. It is possible that the lower income spouse may therefore not have excess income at all, or is income attributed equally once it reaches a joint account for example. Any thoughts?

[scrumpyjack]

I presume that if a mother and/or father (married) choose to gift to their offspring from excess income, it must be undertaken on an individual basis and therefore individual calculations of income and expenditure are required for the IHT 403 forms. Another layer of complexity may arise if one spouse has a higher income than the other, possibly with different levels of expenditure, so not simply 50% of household income and expenditure. It is possible that the lower income spouse may therefore not have excess income at all, or is income attributed equally once it reaches a joint account for example. Any thoughts?

Our gifts are from a joint bank account and obviously our incomes are different. I understand the way this works is that expenditure is apportioned in proportion to income, as are the gifts from joint resources. My spreadsheet therefore arrives at net income for each of us and household expenses and gifts are apportioned between us in the same proportion, so we each have a surplus of income over expenses and joint gifts are automatically covered in the same way.

[Howard]

Am I correct in believing that regular gift issues only apply to the second death of a married couple as there is no IHT to pay if the bequests in the will to children/grandchildren/other relatives are below the IHT threshold even if the estate going to the surviving spouse is large. So probate after the first death is fairly straightforward.

The records for the person dying first are not really relevant? It's the financial records of the surviving spouse which are important?

Obviously making large gifts early is a good strategy if one can afford this. There will be IHT to pay on second death but this is really unavoidable if there is a valuable house plus investments in the estate of the surviving spouse. Having looked at the IHT avoidance solutions suggested by advisors it has seemed to me that their complexity and costs (unless one is very wealthy) make giving early to reduce the size of the estate the best approach.
regards

Howard

[mutantpoodle]

a couple of earlier posts suggested that penalties for not coming clean might be upto 100% of tax etc

I would suggest (based on a personal experience) that the REAL penalty might well be that they will start an investigation in tax affairs

when my dads accountant screwed up his return, we were hit with an enquiry requiring full info going back 7 years
all returns
all incomes etc etc.......absolute nightmare........and naturally the accountant tried to wash his hands

best avoided!!

[UnclePhilip]

Am I correct in believing that regular gift issues only apply to the second death of a married couple as there is no IHT to pay if the bequests in the will to children/grandchildren/other relatives are below the IHT threshold even if the estate going to the surviving spouse is large. So probate after the first death is fairly straightforward.

The records for the person dying first are not really relevant? It's the financial records of the surviving spouse which are important?

Obviously making large gifts early is a good strategy if one can afford this. There will be IHT to pay on second death but this is really unavoidable if there is a valuable house plus investments in the estate of the surviving spouse. Having looked at the IHT avoidance solutions suggested by advisors it has seemed to me that their complexity and costs (unless one is very wealthy) make giving early to reduce the size of the estate the best approach.
regards

Howard

Some care needed here, if I understand correctly.

In the scenario you describe, although no IHT on first death, the transferable nil-rate band can be reduced, so that there would be more IHT on second death

[Lootman]

a couple of earlier posts suggested that penalties for not coming clean might be up to 100% of tax etc

I would suggest (based on a personal experience) that the REAL penalty might well be that they will start an investigation in tax affairs

Your use of the phrase "coming clean" there rather implies that you think the executor was doing something wrong and fishy, and hoping to get away with it.

But what I saw was more a matter of the executor not including items that do not lead to any additional IHT being due anyway.

In the vast majority of cases the taxman accepts the accounting done by the executor as is, not least because the executor can be held personally liable for any extra tax due if he makes a mistake, omission or (worse) engages in fraud. But that is not the case here.

I do not know what the criteria are for the taxman to start an investigation of a probate submission. But I imagine that there would need to be some clear grounds for suspicion AND that the estate is large enough for such an investigation to be worthwhile. Most probate submissions are just rubber-stamped as the taxman cannot look in detail at more than a small percentage of them. So an executor would be very unlucky to suffer one assuming that his documentation looked good and that the amount of the tax determination seems reasonable under the circumstances.

Unless of course some probate submissions are selected at random for a full investigation.