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 ?

Have they kept some money aside for potential care home fees?

@DeftWasp yes I can imagine that's true ! It's all v complicated and fiddly and yes how does someone know.

This will be a larger estate though because their property has rocketed in value.

@Advocodo I'm sure they would have yes .

You’d need to double check this but I think if it’s £3000 or less per person per year then it isn’t included in inheritance tax.

it also depends when they started paying this - e.g if they have been paying a regular amount for many years prior to any onset of illness that may have required care then it is unlikely to count as depreciation of assets.

One scenario is that a parent pays £200/month towards a mortgage from when they were 60y old. They have a stroke at 75y and require a care home and then die a year later. The £36 000 paid towards the mortgage won’t be recalled by the care home for fees nor be subject to IHT provided this can all be demonstrated as being a longstanding, established and regular payment.
If a lump sum of £36000 was given at age 73, say, then it could be seen as depreciation of assets and liable to IHT if that person were to die within 7y.

Depends how much they are spending on birthday and Christmas as you have another £250 allowance for that

Absolutely, if they pay direct to the university, they are buying the service, which has no redeemable value once used - its only if cash or a cash equivalent asset (ie house deposit) is involved.

Also, it’s no different than them
keeping the money and then it all coming as inheritance imo. Except if they survive (and it tapers before the full 7 years) that amount will come out of the estate. If they will still have a property then that will fund care so I wouldn’t worry about that all. Is there a dead spouse as their nil rate band can be utilised too.

There is no fear of deprivstion of assets at all.
And sounding rather harsh that's their issues not mine.
I just wanted to find out am I liable if younger DC gets fined

@noworklifebalance thanks.

Both mid 70s and in very good health so far

Problem is the council can ask for the gifts to be paid back for the care fees

Strictly speaking this isn’t true, gifts under £250 aren’t counted at all and you also have a £3k pa exemption for gifts too

I'd suggest having a really good read of IHT rules on reputable, money focussed websites, rather than asking MN AIBU because there is a lot of confusion here over when IHT is payable and who by.

If the estate is large enough to pay IHT, the estate is liable. Not you or any beneficiaries. You don't receive any inheritance until after death, you have not received any inheritance from living people (even if that's what they called it).

It does get more complicated when looking back at gifts made over the previous years but generally if the gifts have been that significant, the estate will still be large enough to cover any IHT bill. IHT is payable before any beneficiaries receive their distribution.

We had to fill in the gifts out of surplus income form - not because of direct gifts to us, but because of life insurance premiums my MiL made, where the policy was written to pay out directly to DH. According to HMRC, the premiums are counted as a gift to DH.

We were able to retrospectively complete the 'gifts out of surplus income' form by getting hold of the the last 7 years bank statements (from the bank) and going through every single one, line by line. The premiums were substantial so it was worth the time investment and actually only took a few days.

With IHT in general, the £325k allowance is simply reduced by the total amount of gifts made in the last 7 years, not including the regular gifts out of surplus income. So as long as the total other gifts made are less than that, the remaining estate will pay the IHT. It's only where gifts within 7 years are higher than £325k that the recipient is asked to pay the tax directly to HMRC.

I just want to correct something here. The tapering over time of IHT payable for gifts made within 7 years only applies to gifts made above the £325k allowance. If the total amount of gifts are less than £325k, the IHT allowance is reduced by the amount of all gifts made within 7 years, even if they were made 6 years and 11 months before. It's a common misunderstanding and something that isn't always made clear in news articles.

You don't want to ask me how I know this!

@noworklifebalance

As I've said there is no issue with care home fees ? They have a hugely valuable property now worth minim 2 millon probably three. So whilst understand care homes cost a lot I don't think that's concern for them .

@theturtleswims thank you so much it's all so confusing and how would anyone prove surplus income anyway unless really on the bread line !

I did try and research it but no where did I get a specific answer to who pays for our youngest DC.

However from what your saying and others , we shouldn't need to worry unless they have gifted to others over this 325 threshold.

It will all be on the exectuors

This

Ok - just clarifying for others reading the thread when you said “it’s their problem not mine” that it CAN be the problem of the person gifted the money if the council want it back to pay for the fees

Oh ok thanks ,I thought I had already said that in response to an earlier poster. Hence it's not on my radar and I don't think it will be an issue

@Serenity75 thank you !
This is also something DH can aks them to consider then

The problem with care home fees is that they can be assessed as still having the money that has been given away and there is no time limit on that. If they can't pay their care fees, and the state won't, it is usually family who step in.

This isn’t true, it’s subject to the same regular gifts out of income rules. Paying for university fees directly will likely meet the regular test, but it might not meet the out of surplus income rule.

@SpringingOn family stepping in out of goodwill or forced to ?

If course non us knows where life takes us but they are pretty financially solid and would never dream of entering state run care. .they have spoken about getting people in to their new home when they get it.

They take care of themselves.

If I were you, I would download the IHT forms from the HMRC website so you know what you'll be dealing with. The surplus income form is basically like a budgeting tool. You have to list their expenses like council tax and other household bills. Then there are sections for travel and discretionary spends like holidays and entertainment, and other regular costs. Then there's a different section for income. You have to tot up all the expenditure, deduct it from the income, and the amount that's left should be more than the gifts being claimed came from out of that surplus income.

The forms are actually fairly clear, as is the guidance. We also found the HMRC manual somewhere on the internet so there's actually a lot of information online that you can access to explain things. We give our kids a regular monthly amount (we basically continued their university contributions) so I've decided to start keeping these records now, to make it easier for them in the future.

There's actually one more thing to be aware of. You mention "they" as in grandparents gifting. Do the gifts come from a sole account or a joint account? If a sole account, the gifts are deemed to have come solely from that person. If a joint account, the gifts are deemed to have come from whichever of them funded the account it came from. So if it's a joint account that is funded by a single pension, HMRC will class it as coming solely from the person who owns the pension and not 50:50. This really surprised us when we found out, because it's the opposite to how it works in other areas like tax returns. Just something to be aware of anyway. On discovering this we try to give gifts half each from sole accounts in order to hedge our bets!