How does gifts work wrt inheritance tax?

[dontsaveusername]

Late sil gifted her DD £11,000 in 2017 and £6000 for a car in 2019. She died last year. Her estate is worth over the threshold for IT. Do these gifts need to be paid back, or IT paid on them or what?

Rules on the gov website seem very complicated.

I believe the gifts become part of the estate so are subject to inheritance tax.

I think there is a £3k per year gift allowance.

Money Advice Service take on it.

Money doesn't need to be given back, but the estate will probably need to pay some inheritance tax on the gifts.

Depending when in the year the amounts were paid, the 2017 gift can use 2 years worth of tax free gifting (assuming no gifts were given to others), reducing that to 5000.
The 6000 could again spread over 2 tax years, wiping it out completely, or maybe reducing it to 3000 if only one tax year involved.
Then, if the first gift was more than 3 years before your SiLs death, the tax could also be under 40%.

You need a timeline with the tax years marked to see how everything lines up. If in doubt, declare it all.

Are you the executor? I found the IHT Probate helpline very approachable and clear. There is a link to them on this page about gifts:

www.gov.uk/inheritance-tax/gifts

I think generally gifts are added to the estate value, with a sliding scale reduction for the time that has passed since the gift was made and tax calculated as part of the overall estate liability. But there are various exemptions, and any tax due will depend on other factors. If most of the estate was left to a spouse, for example, then the gifts might still be covered by the nil rate band.

There is also taper relief for gifts made more than three years before you die.

Taper relief only applies if you have given away more than the inheritance nil rate band during your lifetime.

Thanks everyone, that is so much clearer!