Taking out cash.

[Daisymae15]

Mil has a lot of money which she has in the bank. But only now has decided that it's to be split between Dh and his brother and sister.
Mil thinks it will be ok just to take out cash and split between them. She has a will but wants to give out now.
When we visited today she has taken out nearly£15k and has given everyone £5k in notes.
We were shocked about her taking money out and having it in her house.
She is 85 and in poor health if she dies will the tax man chase us for any penalties.

You are allowed to give a certain amount away every year. If her whole estate is worth less than £320K, (I think thats the amount) she wouldn't have to pay any inheritance tax anyway.

She's also got to think about possible deprivation of assets if she was to go into a publicly funded nursing home.

Thanks for replying but she gave them each £1k in April which will be allowed.
Her estate if she dies tomorrow would be over £350k. Not that we want that and she is in good health.
In her mind she is now hiding her money from Mr taxman and thinks giving out cash, there
wouldn't be a paper trail.
All 3 of them are worried now that
a) she is walking around with all that money.
b) how much money she is keeping in the house.
c) will they get into trouble from the tax.

I think inheritance tax would be paid out of the estate, rather than someone asking you to repay money you may have already spent.

Are you able to persuade MIL to make any future gifts by bank transfer, to reduce the risk of loss or theft?

If she has a large estate above the level where inheritance tax is payable, it's probably worth getting advice or at least doing some proper reading of the rules.

The limit is £3k a year. Gifts in excess of that made within 7 years of death can be included in the estate for IHT purposes if those gifts take the value of the estate above the £325k limit.

Again thank you for your replies.
What I'm asking is about the money she has taken out of her account in cash.
There is only the trail of it on her bank statements as taking out in cash.
No record of her giving it to her 3 adult children or even grandchildren.

I would get her to do a transfer or a cheque so there’s no worry about cash.

She can give away as much as she wants, there’s no tax issue for the recipients. In addition to the £3000 she can also give away money from her income provided it leaves her enough to live on. That falls outside IHT. If she lives, say, 5 years, the proportion of the £15,000 that could be liable for IHT is reduced, so she could be right to distribute it now. Deprivation of assets would be deliberately giving money or other assets away to avoid having to use them to support yourself, however as she still has her house asset if she had to go into residential care the £350,000 would pay for a number of years worth of self-funding care.

Grandma is right in some ways although it's dishonest to do this and breaches tax rules and statutory guidance.
It is very difficult to prove if no (digital or) paper trail.

However that doesn't mean HMRC (taxman) might not investigate via her- and others - bank records (of withdrawals and deposits) - inheritance tax is up to the last 7 years before death less £3k per year in total for 'gifts'

Local authority has no timescale nor amount. If it is reasonable to expect she has care needs or will soon, any large withdrawals/ lump sums gifted away to avoid care charges could/ would be considered deprivation of assets.

I meant it's dishonest if the large cash gifts aren't declared when completing IHT/ on her estate later.

My grandparents got like this towards the end it was very worrying.

When gran died and the house was being cleared the "kids" had to do it painstakingly themselves going through every piece of paper, every used envelope, every book, magazine, coffee tin etc cos she had basically hidden money all over the place! There was thousands! (And she wasn't a rich woman) what is even sadder is that there were things she NEEDED that the family either bought her or she did without as she THOUGHT she couldn't afford. Heartbreaking.

I'm not sure how feasible it is but could the bank be alerted to her vulnerability so she's not withdrawing huge amounts in cash?

Is she still compos mentis? Or is it perhaps time for someone to have poa?

My gran had dementia so it got very tricky at the end.

You don't want to hurt feelings or insult them but you also don't want them to be at risk. Either from dodgy types or simply misplacing huge sums of money.

We found £2500 in a shoebox in the spare room at one point.

@Graphista this is what we are worried about. She is always saying how poor she is.
Today is the first time we new she had a LOT of money. She has always been secretive.
Every April she has always given each family £1k to split between them.
Which they believe was legal. The 3 adult children do have POA for health and finance.
But as she is of sound mind in body and mind have let her be.
It seems that when she was in the hairdresser's a few weeks ago someone mentioned about giving her money away
so the taxman won't get it. It's so odd that she will listen and talk to strangers but not her family.
At least my family haven't got a lot of money. So it's not a problem I'll have.

If she dies before 7 years of giving the money away, they will have to pay tax and its alot

Who will know where this cash has gone. Unless DH, DSIL and DBIL declare it.
As there is no paper trail it just states on her statement that she has taken money out.
DH (Eldest) is going back to chat to her and find out if there is more in the house.

Then the tax will be taken out of the estate left

The tax man is not daft

Wouldnt they have to prove who the 15k was given to. If the 3 children she gave it to don't put in the bank surely there's no trail?

If MIL owns her own house and the proceeds of that pass to either children or grandchildren, then inheritance tax won’t be payable unless above 500K.

If there is no house, I think it is payable above 325k.

The 7 year rule doesn’t apply to deprivation of assets if she goes into a care home, but if she has more than 350k, that would cover her fees initially anyway.

As I recall, you can give away £3k tax free per year, and you can backdate it a year. So if you gave away nothing last year, you can give £6k.

My DGM was a bit like this, she'd squirrel cash away and give people money when she'd saved up enough. Like your MIL she did it that way so there was no proof of who she'd given it to so no inheritance tax. Her estate was always going to be well below the threshold, but she wouldn't have it, she was convinced 'they' would want to take her money.

Most memorable was when she posted me and some relatives £1000 CASH each. Not even recorded delivery (not that that would be much better) just slapped a 1st class stamp on it and shoved it in a post box!