Gift Question

[Charlottesquare]

If (say) they used the LPA prior to death to transfer the mother's assets to themselves then there might not even be a need for probate. And therefore no need to pay a fee to the probate office, nor possibly to a solicitor to help deal with that office.

Unless, when the will is finally revealed, one turns out not to be a beneficiary.

Ah but in the case where a parent wishes to disinherit one of their kids then it would not be likely that the £1000 gifts would have been made to them either.

I cannot imagine disinheriting one of my kids but, if I were to do that then I would revoke their LPA, remove them as a Will executor and beneficiary, and not make gifts to them either.

However one might leave the share that would have gone to one particular child into a trust instead, that certainly happens.

[Eboli]

Lootman said

...the odds of the average executor picking up on such an obscure nuance is trivial.

Heck, most of the professionals I have encountered would have let that go. The real world just does not operate that way.

I cannot and will not comment further because it is totally unclear what you regard as the obscure nuance. There is nothing obscure about what I said or the legislation that confirms it but there may be on your interpretation of it.

Eb.

[Lootman]

Lootman said

...the odds of the average executor picking up on such an obscure nuance is trivial.

Heck, most of the professionals I have encountered would have let that go. The real world just does not operate that way.

I cannot and will not comment further because it is totally unclear what you regard as the obscure nuance. There is nothing obscure about what I said or the legislation that confirms it but there may be on your interpretation of it.

What I said was very simple so I am surprised you claim not to understand my point.

You claimed that the rules state that if X gives a £100,000 gift intended as a PET, and then gives a £3,000 gift intended to be covered by the annual gift from capital allowance, then the effect would in fact be a £97,000 PET and then a £3,000 PET.

I have no idea if that claim has any merit since you provided no proof of it; only a claim of a "hidden assumption". But in practice no executor would handle it that way. They would instead look at the clear intent of the deceased.

By the way it is considered good etiquette, when replying to another Lemon, to directly quote them. That way they get a notification of your response and can respond to that. By citing me without a quote, not only do you fail to represent my view correctly, but you might appear to the community that you were hoping I did not see what was an attempt at a criticism of my position. Use the quote button.

[terminal7]

Also worth noting that the 7 year rule is accompanied by taper relief so that after 3 years the tax burden reduces annually. All of course the estate is above the nil-rate band.

T7

[Dupont]

Is that on gifts above the annual £3000 allowance?

[genou]

Lootman said

...the odds of the average executor picking up on such an obscure nuance is trivial.

Heck, most of the professionals I have encountered would have let that go. The real world just does not operate that way.

I cannot and will not comment further because it is totally unclear what you regard as the obscure nuance. There is nothing obscure about what I said or the legislation that confirms it but there may be on your interpretation of it.

What I said was very simple so I am surprised you claim not to understand my point.

You claimed that the rules state that if X gives a £100,000 gift intended as a PET, and then gives a £3,000 gift intended to be covered by the annual gift from capital allowance, then the effect would in fact be a £97,000 PET and then a £3,000 PET.

I have no idea if that claim has any merit since you provided no proof of it; only a claim of a "hidden assumption". But in practice no executor would handle it that way. They would instead look at the clear intent of the deceased....

The snag for the executor doing it your way is that they are acting against the law, specifically the Inheritance Tax Act 1984 s 19(3)

(3)Where those values exceed £3,000, the excess—
(a)shall, as between transfers made on different days, be attributed so far as possible to a later rather than an earlier transfer, and
(b)shall, as between transfers made on the same day, be attributed to them in proportion to the values transferred by them.


So 97k PET and 3k PET, as stated.

[gryffron]

Is that on gifts above the annual £3000 allowance?

Correct.

But the point being made is that it is never worse from an IHT perspective to gift cash sooner rather than later. It might not be any better, but it's never worse. Since earlier gifts may qualify for taper or 7 year exemption. Whereas the cash that's left in your estate certainly won't.

Gryff

[Lootman]

Lootman said

...the odds of the average executor picking up on such an obscure nuance is trivial.

Heck, most of the professionals I have encountered would have let that go. The real world just does not operate that way.

I cannot and will not comment further because it is totally unclear what you regard as the obscure nuance. There is nothing obscure about what I said or the legislation that confirms it but there may be on your interpretation of it.

What I said was very simple so I am surprised you claim not to understand my point.

You claimed that the rules state that if X gives a £100,000 gift intended as a PET, and then gives a £3,000 gift intended to be covered by the annual gift from capital allowance, then the effect would in fact be a £97,000 PET and then a £3,000 PET.

I have no idea if that claim has any merit since you provided no proof of it; only a claim of a "hidden assumption". But in practice no executor would handle it that way. They would instead look at the clear intent of the deceased....

The snag for the executor doing it your way is that they are acting against the law, specifically the Inheritance Tax Act 1984 s 19(3)

(3)Where those values exceed £3,000, the excess—
(a)shall, as between transfers made on different days, be attributed so far as possible to a later rather than an earlier transfer, and
(b)shall, as between transfers made on the same day, be attributed to them in proportion to the values transferred by them.


So 97k PET and 3k PET, as stated.

If that is the case then I find myself doubting whether in practice it is monitored and enforced. For two reasons:

1) It is not going to make any difference to the IHT collected. Either way there is an IHT-free gift of £3,000 and PETs totaling £100,000, the latter expiring after 7 years. And in general if a rule does not lead to more tax being due then the taxman won't care about that rule.(*)

2) My accountant, who deals with these things all the time, does ask me for an annual schedule of gifts that I make, for the purpose of documenting my gift history for eventual IHT purposes. He asks me annually for various details about my gifts (donee, amount, type) but NEVER the date within the year that it was made.

So if the theory is that the chronological order of gifts within a tax year matters, then it appears to not matter very much in practice. Executors will generally declare gifts by the documented intention of that gift and not the historical accident of the claimed date.

(*) I can see an exceptional case being where the donor dies within 7 years AND the estate has no money to pay any IHT due. In that case the order of those gifts may inform which donee's to go after for the tax. But that is a fringe case and not usually relevant.

[genou]

2) My accountant, who deals with these things all the time, does ask me for an annual schedule of gifts that I make, for the purpose of documenting my gift history for eventual IHT purposes. He asks me annually for various details about my gifts (donee, amount, type) but NEVER the date within the year that it was made.

Then he is hoping that your decease will not involve a form IHT403, as the date of the gift is a required field.

So if the theory is that the chronological order of gifts within a tax year matters, then it appears to not matter very much in practice. Executors will generally declare gifts by the documented intention of that gift and not the historical accident of the claimed date.

It can very much matter in practice. The date of a gift is not an "historical accident" , it is a deliberate decision by the donor ( that decision may be ill-informed , but it is not an accident ).

[Lootman]

2) My accountant, who deals with these things all the time, does ask me for an annual schedule of gifts that I make, for the purpose of documenting my gift history for eventual IHT purposes. He asks me annually for various details about my gifts (donee, amount, type) but NEVER the date within the year that it was made.

Then he is hoping that your decease will not involve a form IHT403, as the date of the gift is a required field.

You assume there that my accountant is my executor. He is not. He would merely submit his documentation to my executors, upon request, and it is the executors who would be responsible for completing any forms required. And discovering any missing data if they deem that appropriate.

And by the way, just because a date is asked for on a tax form does not mean it is required. For example the CGT section of a self-assessment income tax return asks for an original buy date. But if you leave it blank nothing happens. It is probably a throwback to when CGT involved indexation computations, but they never bothered to remove the date item.

In case you are curious that section also asks for number of shares, but zero is accepted! So do not be fooled into thinking that everything that is asked for on a tax form is actually important, used or required. This is why it is important to not just look at the rules and forms, but to notice what actually happens in practice, which is not always documented.

So if the theory is that the chronological order of gifts within a tax year matters, then it appears to not matter very much in practice. Executors will generally declare gifts by the documented intention of that gift and not the historical accident of the claimed date.

It can very much matter in practice. The date of a gift is not an "historical accident" , it is a deliberate decision by the donor ( that decision may be ill-informed, but it is not an accident ).

As stated, it usually will not matter at all, as it doesn't change the IHT due in any scenario that has been presented here so far.

Most donors choose the date for reasons other than finessing tax rules.

[Lootman]

So if the theory is that the chronological order of gifts within a tax year matters, then it appears to not matter very much in practice. Executors will generally declare gifts by the documented intention of that gift and not the historical accident of the claimed date.

It can very much matter in practice. The date of a gift is not an "historical accident" , it is a deliberate decision by the donor ( that decision may be ill-informed, but it is not an accident ).

As stated, it usually will not matter at all, as it doesn't change the IHT due in any scenario that has been presented here so far.

As a thought experiment, I engaged in some rather convoluted conjuring in order to come up with a theoretical scenario where the two methods of reporting come up with a different tax amount.

Take the prior example of a £100,000 gift followed by a £3,000 gift in the same tax year. Let's say the first gift is on 1st May, 2022 and the second gift is on 1st June 2022. There are three possible cases:

1) The donor dies before 1/5/2029. All PETs fail. No difference.
2) The donor dies after 1/6/2029. All PETs expire and are not reported. No difference.
3) The donor dies between 1/5/2029 and 1/6/2029. Only £97,000 of the PETs have expired, rather than £100,000.

In case (3) extra tax is due in the amount of 8% (80% tapering) of £3,000, or £240 in extra tax. Not nothing but barely worth a taxman getting out of bed for on a 7 figure estate. There may also be small differences with a May death in some earlier years due to two different tapering percentages used but that is surely also trivial.

Bear in mind also that the annual £3,000 gifts are not routinely reported anyway so most likely will not be known about.

Note also that the exact date of the gift might not be known and may not be discoverable by the executors, for a variety of reasons. Therefore it must be possible to leave it blank on the form. Or at least marked as not known.