Inheritance tax question

[flagnogbagnog]

I'm really not sure where to post this, so I'm sorry if it's not in the right place. My poor mother is having a terrible time trying to sort out inheritance tax after the death of my father 4 months ago. Our understanding is that if there is any tax to be paid, it must be paid within 6 months of the deceased's death or inland revenue will charge interest by the day. So this 6 month date is looming over her and causing her so much stress at a time she really doesn't need it.

I'll try and keep it brief: my father's estate value falls below the threshold for inheritance tax. My parent's joint assets also fall below the joint inheritance tax thresh hold. Therefore they believed inheritance tax was not going to be an issue.

My mum has sought advice from an accountant who also believes there is no inheritance tax liability.

However her solicitor who is handling probate etc has insisted my mum collect data of any gifts my father made in the last 7 years because there will be inheritance tax due on these gifts. Does anyone know if this is correct? Mum has phoned HMRC twice and had two different answers.

My father was very generous to myself and my siblings and without trying can already add up gifts to us of over £40,000. Plus there were lots of small financial contributions which are impossible to accurately remember. The solicitor wants my mother to swear an oath stating all the information she gives is correct. DM takes all this very seriously and is freaking out in case she has forgotten anything.

Thing is I'm not convinced that this is not just a wild goose chase that is totally unnecessary at a time when we could all do with out it.

Please can anyone advise? It just seems that no one knows for sure and the solicitor insists it's got to be done.

yes gifts in the past 7 years would count as part fo the estate , less an allowable annual amount, but if the house etc are passed to her I don't think it is liable for IHT until she dies.

Yes, you need to take the gifts made in the last 7 years am add them to the part of your father's estate that your mum did not inherit (assuming they were married!). If the total is less than £325,000 then no IHT is due. If it's above £325,000 then some IHT will probably be due.

Thank you for your replies. The estate still falls below that threshold even with the gifts, easily.

The solicitor seems to be saying that regardless of that there will be IT to pay on these gifts! Also solicitor is of course charging a fortune to deal with all of this.

Change solicitor, there shouldn't be and especially not now if dm is inheriting the bulk and it falls within the threshold. The value of your df's estate and his IHT allowance in that case would be transferred to her. Were the gifts entirely from him or joint ?

or could he be saying it is liable for IHT, which is true, but if the value of the estate is that low there wouldn't be any payable regardless.

AFAIK the gifts are considered potentially exempt transfers. Everyone can gift values to a certain value tax free (think its something like £3k a year, to children etc but if the value is gifted is over the allowable amount and the person gifting dies within 7 years tax could become due. THis is on a tapered scale so more tax would be due if the person died in year 1 after gift than in year 7. Your solicitor is correct in that you ( the Executors) will need to determine what gifts were made within the last 7 years to add these to the estate and if value of estate exceeds current IHT limits there could be some IT due.

Your solicitor is giving you a confusing message. The gifts aren't liable for inheritance tax but for another tax (capital gains I think - payable at 40%). But your mother isn't liable - it's the recipient of the gift that has to pay. But don't panic - the amount that your father can gift to a close family member is generous - it was £4500 to a child last time I looked. Then the tax liability 'devalues' by one seventh every year. Alos every part of a tax year counts, so if your father died after April then you get the full seventh for this year.

Take some proper advice on this - or take a look at the HMRC website and it explains clearly. Maybe your mother is getting a bit confused at a stressful time.

regular gifts out of income dont count either
regular can mean yearly birthday presents or weekly allowance

try looking here

www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

fortyplus - capital gains tax affects the gift giver, not the recipient and is definitely not due on cash gifts. It may be due on gifts of shares, houses etc but unlikely based on what the OP has said. In any case, capital gains tax would have been due at the point of the gift, not at the point of death of the gift giver.

The only tax biting on death is inheritance tax and if the total of gifts plus inheritance is less than the nil rate band (£325k) then no inheritance tax is due. LIZS might be right in saying that the solicitor means the gifts are liable to inheritance tax but being under the nil rate band threshold no tax is due. Seems unnecessarily pedantic to say that though.

Yes, CGT is due by the gift giver, but would only apply to the capital gained, so a property increased in value by 20k would force your mother to pay 8k in CGT.

I would do what the solicitor says, even if you can't remember exactly. There's no point in complicating things. You just need to be as honest as possible.

depends on the size of the gift, I thought - my father used to 'gift' my sister and I £3000 a year each as that was the maximum he could give without us being liable for IHT. When my mum was sorting his probate we were never asked about this which suggests the lawyers and accountants knew it wasn't an issue.

That was over 10 years ago, though, so it could have changed, but I would get a second opinion.

CGT is probably another reason why government are quite happy to keep house prices high...

It applies to antiques and art too, things that appreciate with age.

if your father gifted your mother items - there is no CGT due as its an exempt spousal transfer. any other gifts would have attracted capital gains tax at the date of gift

Any items transferred to your mother on death will be exempt.

Your fathers estate will be calculated with the gifts he made less the taper relief available.

It will also depend on how the will was written ( you can change this within 2 years using a deed of variation) and what gifts are included in it.

I would recommend that you contact a good accountant or tax specialist rather than rely on the solicitor who IME are known to get IHT issues wrong. You can find a chartered tax adviser in your area on www.tax.org.uk/about_the_ciot/find-a-member-in-practice and they can advise you on the IHT issues.

If the estate falls below the nil rate band then going to a tax adviser is probably a waste of money.

In my experience they like older people to see a tax adviser personally to ensure choices are fully informed ones. It's a pain when the older person just doesn't want to know but that's the way it seems to be these days.

I also think you need to change solicitor. I handled probate after my Dad died and it wasn't nearly this complicated. I don't want to give you advice as it was 10 years ago and things may have changed, but this sounds unnecessarily expensive.

Is your mum the sole recipient in the will?

PS Chablis also mentions deeds of variation and a good accountant. Sound advice. A deed of variation saved my mum about £30000 IHT (this was the passing of another family member not my dad I mentioned above)

Thank you all so much for taking the time to reply. Also thank you for the links, I will take a look now.

All gifts were joint gifts from both parents. We are recording dates and years and using up reliefs etc where we can. The gifts were things like a new boiler or a car for £2000. There are four of us children so over the past 7 years it has added up.

I have been trying to find a specialist tax advisor locally but am not coming up with anything very helpful. In fact a search brings up the accountant that my mother already uses.

Mum was the sole recipient of dads will.

I think his estate was worth approx £160,000, and gifts over the past 7 years total about £40,000 (so as they were joint gifts between him and mum I suppose that makes it £20,000).

I have tried to persuade Mum to use a different solicitor but she feels she has paid so mum out to this one already, and we are so far down the road that she can't bare to right off the expense.

flag I'm sorry that I've only just seen this thread. I am a probate lawyer and qualified tax advsior.

1. If all the estate is passing to your Mum then there is no IHT.
2. Yes you have to declare gifts made in the 7 years prior to death and your mum will have to sign the IHT forms to say that she has done this.
3. However, all the gifts will do is use up some of your dad's nil-rate band so that on your mum's death the whole amount cannot be transferred, just the unused proportion.
4. In addition your mum and dad can gift £3000 each per annum which is their exempt amount so such gifts would not count towards the £40,000. If they did not use their allowance in any one year then it can be carried over by a year, so they could gift £6000 each in that year. In addition they can make numerous small gifts of £250 each which would also be exempt.
5. Only gifts which exceed the nil-rate band of £325k are liable for inheritance tax. In that case the tax would be payable by the estate but recoverable from the recipient. If the gifts were made more than 3 years prior to death then the tax is tapered.

6.From the information you have provided there is no IHT due.

1. Capital gains tax is paid at either 18% or 28% ( hasn't be 40% for a few years now) and is irrelevant in this scenario. It would only apply where an asset has been gifted which has increased in value since acquisition and is paid at the time of the gift by the giver.

PM me if you want any more help. I will happily check your solicitor's calculations if you like.

Thank you so much Posh Frock, so Mum does need to record all of this and sign a form, but that is standard and doesn't mean we are going to be faced with a big bill (because the estate value is still within the nil rate band of under £325k).

This is great to know for sure because our accountant suggested the solicitor was just stretching things out to make more money. Thank you all once again!

The Small Gift Exemption is limited. You can ignore gifts up to a total of £250 to any individual in a tax year. However,as soon as you give a person more than a total of £250 you lose the Small Gift Exemption and the gift eats into the annual £3,000 allowance unless you can qualify under the Normal Expenditure Out of Income exemption.That exemption requires you to produce quite a bit of paperwork.