GP not sorting out their money gifting properly WHO will have to pay any IT ???

[HowdoyoureallyKnow]

So a GP has decided to down size and they have a considerable sum they want to pass on now to our dc
Wonderful to our DC we are happy however there are strict rules it has to be regular and out of surplus income .
They have given regularly but don't seem to be aware of the surplus income part ?

Who will have to pay it if they die ? One DC os nearly 18 so I assume they pay it out of their pot and the other is 12 so who would pay theirs ?

Keep a proper list of all gifts and dates.
I am guessing it comes out of their house or what is left if they die and after you or DCs if not enough is left to cover it but ask an advisor

Firstly, nothing they give more than 7 years before their death will attract IHT. Any tax due is then paid by the estate on their death so long as the total value of gifts doesn’t exceed the nil bad (325k ish), not by the recipient of the gift so if they still have the house then it would likely come out of the proceeds of that. There are also annual exemptions/ nil bands for gifts so depends how much we’re talking if this is likely to be a problem.

As PP says, if they survive more than 7 years it doesn’t matter. If they die within 7 years then they are pulled back into the estate for IHT purposes. In terms of who pays- the estate of the deceased usually pays if there is enough left in there to cover it, if there isn’t enough left to cover it though then the recipients of the gift are then liable so the 18 year old is responsible for their share, the 12 year old wouldn’t be liable but their parent/guardian would be liable on their behalf from the funds held for them.

There is a form you will out if you claim this when they die. Can’t remember the name of it. We keep spreadsheets based on the government form so when the time comes it should be easy. You have to record their bills etc to show they still ah e their normal quality of life. Our accountant also advised a signed letter stating certain things eg they are under no obligation. Isn’t there a rule about it being regular as well? The Telegraph often have good advice on this

If the total amount of the gifts is under the nil rate band (the amount you can pass on tax free after death), then any gifts that are made within 7 years will used up the nil rate band first (so no tax to pay for those gifts). If it’s more than the nil rate band then the people who received the gifts would be liable, unless provision is made in the grandparents will to cover that cost before giving out the rest of the estate.

I would have thought it would come out of the part of the estate that they still own. Presumably they'll still own a property and other assets, which will be substantial.

But if they're in a position where IHT planning is a consideration, probably best to pay for advice from someone who can see their entire situation and answer questions like this.

It depends how much is gifted and how long afterwards the person who gifted dies.

When you apply for probate - there is a section to list gifts given in the last 7 years. These are the first thing counted against the IHT nil rate allowances (usually 325K per person or 500K if they are leaving a primary residence to children or grandchildren). So if the gifts are less than this - there is no IHT to pay - but it 'uses' up the allowances. IHT is paid out of the remaining estate before the residual is paid to the residual beneficiaries.

If the gifts exceed the IHT threshold, I think the tax on the gifts and the tax due on the remaining estate is still paid from the residual estate - so it is coming out of money that would otherwise go to these beneficiaries. If there isn't sufficient money in the residual estate, HMRC can go back to the gift recipients. I am not sure what happens on the first death if the remaining spouse inherits. The IHT may only be due on the second death but I am not sure.

Make sure very good records are kept of any gifts - particularly if there are also gifts from 'surplus income' ss these are harder to prove. Everyone also has the ability to gift 3K per year free of IHT. And if you survive for a full 7 years after gifting, the gifts don't count either.

@Jellybunny98 this is what I'm concerned about.
I dont think they will leave anything to their son it's not guaranteed however anything the youngest has to pay would come out of my meager small inheritance i got years ago.

If the total for gifts is that 325 hundred thousand then I think we will be ok

There is also a surplus income rule where you can give any figure you like as long as it's regular and out of surplus income .

Again I don't think they are noting this down

@SpringingOn this is what's concerning me i don't think they are getting proper advice ! And perhaps not noting things down

OP just bear in mind the gifts total is £325k in total. So that's going to include gifts to everyone, not just your kids. Including birthday and Christmas gifts etc

But you wouldn’t have to pay. The relevant percentage would come out of the money you have held for your youngest. And only if the estate (once house sold etc) didn’t have enough left to pay inheritance tax.

Your own money shouldn’t be effected?

If not out of surplus income then the gifts become a 7 yr PET. Keep records.

Unless the estate is over £2M then the nil rate band (assuming inheritance goes to direct descendants) is likely to be £500K (£325K + £175K), or potentially up to double that if the GP is widowed.

I think the nil rate band is applied to failed PET first (oldest first) before the remaining estate, so if the gifts are below this then then they won’t have to pay IHT but it does mean the nil rate band had been used on them/partially on them so the rest of the estate will get hit harder if total remaining estate + failed PETs exceed the nil rate band.

@Summerbay23 Because it's locked into an ISA she can't access until 18

Keep meticulous records of what is received when. Gifts that are given regularly like £100 birthday and christmas cheques or even a regular contribution to e.g. music lessons is just counted as normal spending and will not incur inheritance tax if they come out of GPs discretionary spending from their monthly income and aren't reducing their capital assets. Gifts that couldn't be repeated regularly, which deplete their assets and will reduce their income henceforth, are only liable if GPs die before 7 years after the gift, pro rata. So if GPs give £70,000 one-off gift in 2025 and then survive until 2030 and die then, £50,000 is iht free. The recipient of the £70,000 almost certainly doesn't pay anything though - the IHT valuation on the whole estate is increased by £20,000. If the remaining estate is already over the iht threshold then that will mean the IHT bill is increased by a further £8,000, paid by the estate before the Will is executed. If the remaining estate is £20,000 or more under the iht threshold there is no tax to pay, and if it was a little under but the £20,000 addition just tipped it over the threshold, iht is only due on the amount over the threshold- but in any case it is the estate that pays, not a living person.

The only circumstances under which a living person might theoretically have to pay anything would be if the amount they give away is so extreme, and the duration after such gifts that they survive is so short, that the IHT bill after adding the pro-rata amounts of recent gifts to the valuation of the estate makes the IHT due be greater than the remaining ungifted assets. So if they start off with assets of £2,000,000 (which if they died with no gifting would incur IHT of £470,000 leaving £1.53m to distribute according to the Will) and they give away every penny of assets except for a small flat they live in worth £350,000 and not a penny of other assets but die only a year after doing so, then the IHT bill is £403,000 and only £350,000 of that can come from the estate so the recipients of the £1.65m that they gave away would have to cough up the remaining £52k due. This is an extremely unlikely scenario.

But presumably the nominated adult/trustee can operate the account on behalf of the child for any legitimate need? Certainly we could operate accounts for our children when they were minors?

And if the recipient of the gift can’t pay any inheritance tax due, then I’m not sure of the rules? But it shouldn’t necessarily be you if you have had no benefit from the estate.

If it is all in a JISA then the max that could have been transferred over 7 years is £63K (£9K/yr) - unless they have been doing the same for lots of grandchildren then I really don’t think the sums involved are likely to be hit with any IHT at all. It would be unusual for IHT to be paid from a minor’s funds (which can be accessed under these circumstances if needed) rather than from the remainder of the estate, especially with such a relative small amount.

@CoverLikelyZebra thanks that's v helpful

But so we need to keep records our side ?

It's usually 50 for Christmas and birthday ( three children )
So about 200 a year but they have put the full ISA amount into ISA for several years that's 27 grand a year.
They are talking about either helping with deposits or funding some uni costs up to 50 grand each.

@davek thanks and it's our 3 and one other GC.

As pp have said, it's very unlikely that you or they would have to pay anything.

In that case this (total transferred to grandchildren over 7 years of £252K) is comfortably below even the lowest NRB of £325K, and as that will be applied to this first they will not need to pay IHT in the future on this if it turns out to be a failed PET (rather than successful PET or genuinely out of surplus income).
The relatively small birthday/Christmas gifts will almost certainly be out of surplus income so I wouldn’t give those a second thought.

As far as IHT is concerned, no one can reliably tell you anything about an estate of someone still living. Last budget it was widely expected that gifts would be moved from 7 to 10 years and that the residential nil rate band would be done away with, leaving only the standard nil rate bands.

In the event nothing happened - the bands are currently fixed. But no one can really advise as to what will happen down the line.

Currently the situation is that the gift is counted as part of the deceased estate for 7 years. A thing called taper relief can apply, meaning that the amount of IHT decreases as the 7 years elapses.

The IHT would be paid from the deceased estate, except where there is insufficient funds, at which point the recipient can become liable.

Keep records, keep sufficient in a "tax pot" just in case and don't worry about it.

The 325K nil rate band is also per grandparent. So if they have given away 36K per year - it is in effect 18K each. 3K is IHT exempt. So 15K x 7 years, which is 105K. Even if they add another 100K each (50K deposits x4), they are still below the nil rate band unless they are also giving away other assets to other people. It is their executors who will struggle if there are not proper records!

Probably also worth noting that in small estates and small amounts (ie £50K), a huge number of such certainly go unreported. Is that right, no, but it is certainly the case - often because the executor does not know.

There is effectively no oversight of the probate process in small estates, its done on trust, and often by non professionals, ie family members as executor.

And apparently if they pay directly to something like uni fees that's also exempt