The seven year rule on gifting money - how do ‘they’ know?

[Pbok]

My DF thinks that when someone dies, HMRC has full access to last seven years of their bank accounts and go through them with a fine toothed comb, looking for any and all money transfers.

For this reason, if he owes me any money even day just £20, he prefers to give it me in cash.

Is he right? How do ‘they’ know?

Oh and our financial adviser said that she's mostly seen estates challenged re: the accuracy of property valuations that were done by estate agents.

She recommended a chartered surveyor valuation as HMRC are v unlikely to take issue with that.

I work in probate. HMRC will not go through your bank statements. It’s up to the executor to declare any gifts. And gifts between spouses are exempt for IHT purposes so it’s irrelevant in this case anyway

I have (in the last 2 years) been an executor - with a solicitor , of a will of a deceased relative - not my parent and I do not remember being asked this , not that I think it would have been relevant. I was presented with a pre-filled IHT form and just asked to sign it.

When my dad died I just checked my bank statements and listed and dated any amount given and gave that to the solicitor

7 years of bank statements? Oh my word, how do you do that? Are you just looking for big chunks of money being handed over? What constitutes 'big'. I'm dreading having to do this one day (crap at maths)

I was very honest when I did this a couple of years ago for dm's estate. There wasn't much but she had been handing out money to a sibling. I probably needn't have been so assiduous but couldn't bear the thought of fucking anything up for my siblings. Not worth it for a few quid.

I also went through seven years of my mum's bank statements to work out what has been given from income and what from savings. But she was very organised and I had the passwords already so it was easy to download the bank statement although it took a while. Probate was very quick though.

I was wondering about capital gains tax, the surveyors valuation for inheritance tax was really low, But then I was told this is the red book value and it is the market value that's relevant for capital gains tax which I don't really understand, on my list to sort out. But DM's property is really difficult to value because there aren't many properties similar, we've had values between £265k (this is definitely not right, a two-bed went for only a little less than this this when hers is three-bed and has a garage) and £325k. if we get the higher value it will just be because the right person came along at the right time rather than reflect in an actual change in the market, so I had a similar question about how/whether this would be picked up.

How do you check back 7 years when most accounts now are online and paperless? Do you have to ask the bank/building society for paper copies? (They would charge per page for that no doubt?) or do they give you online access to search yourself?

@taxguru that's very good to know, I am finding those observations interesting all round

do you do a newsletter!

we know someone who probably didn't pay CGT and who quietly drew our attention to her accountant - but made very odd comments on the legal sude

so we wouldn't use them - they sound dodgy - but I imagined HMRC would be much more on the ball and be checking everything even if by AI now.

mum accidentally put £500 too much in her an ISA and rang them as soon as she realised

she said they were lovely but I think they realised it was not a crime and just an accident

What I mean - he won’t even repay owed money via bank transfer in case one day, someone looks at the transfer and thinks it’s a gift of some kind.

Very useful and interesting replies, thank you all!

@TheKneesOfTheBees do you have to pay IHT and CGT as well?

@Pbok sounds like my dad

I already had access to my mum's bank account and I was still able to download them just after she died @Callipygion - it did occur to me that this may be some sort of breach of something or other, but I did it anyway! It was kind of confusing because she had some of her income going into a savings account so it wasn't the simple as working out what was paid from her current account and what from her savings account. It was all a guess but at least it was an informed guess!

We're well under the inheritance tax limit @RoundandSad - there's just the potential of capital gains tax on the sale of the house, and on her savings, though I'm a bit unclear about whether the banks will just deduct that before paying us.; we're currently stuck on getting various documents certified for banks as we don't mix with the right class of people! The banks with the least of her money in seem to be the most rigorous about identity.

I was wondering this too. Or how executors or HMRC know about gifts from previous accounts. DP have over 30(!) accounts which I am trying to get them to consolidate over time but goodness knows what has happened to the previous statements, if there were even paper copies.

HMRC can (for example) ask banks for electronic versions of statements either by asking a Tribunal judge to agree without telling a customer - often where there is intelligence from banks. Or by using a Financial Institution Notice (normally during a compliance check where a customer is not co-operating).

Be aware that your high street banks are obliged to report suspicious transactions including transfers to HMRC and they do. Whether HMRC act on every bit of intelligence is another matter. It’s a question of overall risk.

Oh and they use software that can crunch bank data in a few minutes.

HMRC are normally aware from commercial credit reference agencies about bank accounts and credit cards you hold. Also any ISAs, investments, interest bearing accounts etc.

Banks do and will report large transfers or suspicious payments in.

Who really does this- 7x years is 84 bank statements scrutinised! That's assuming one bank account. I've got 3 current accounts.

@roses2

Data is received from banks in electronic format and extracted using specialist software.

I have wondered this too OP.

I am absolutely dreading PIL passing away. IHT will be payable (live in London so their tiny 2 bed terrace is over £1m). Despite being two retired mid level civil servants their financial arrangements are Byzantine and it will take DH and his sister months to sort it out. They don’t want to talk about it while they are well, but they have hinted that they have a fair few accounts. They have given masses of gifts but I hope they now slow down on the gift front and enjoy many more years of good health and spend money on themselves as it will be a nightmare to unpick gifts within iht and ones within exemptions.

Very interesting thread!
I was wondering if payments were made, for example, to a builder, (for children’s house where grandparent stays sometimes) if that would be deemed a gift..?

I have been wondering about this too. My mother gives my somewhat feckless brother money in drubs and drabs all the time - a few hundred here to fix his car, £150 towards a washing maxhine. This is just how she chooses to spend. Her money - she could buy herself a new dress but instead prefers to help him. So in five years time when I am executor, the rules about permitted gifts etc suggest that I should scrutinise her bank accounts to track down the probably £5k a year she ends up giving him and to factor it back into her estate for IHT? Seriously?

I really struggle with the whole idea. It is her money. Surely if she wants to buy him a new clutch versus herself an ipad, that should be her freedoms to do. Why should the tax man get more IHT paid because that is how she preferred to spend her money?

And I too wonder if anyone and how anyone in HMRC would know

• your mum was definitely breaching her agreement with the bank sharing her passwords!
• you wouldn't usually pay CGT on sale of house on death, are you sure you need to? Same for savings.
• the bank definitely won't deduct CGT on your behalf. It's rarely payable for one, plus it's your responsibility to calculate and declare it, the bank won't do that.

@SlenderRations That sounds like it would count as gifts from income, if she can afford to give him money without digging in to her savings, so IHT exempt. Yes, you should probably list it all if/when you are doing the IHT forms (if her estate ends up being liable), but it sounds very unlikely that kind of amount would ever be checked up on.

I did this recently for DP. Got the banks to send over complete set of statements for the last 7 years and went through them line by line. It took ages.

Yes, but that isn’t what OP’s relative or friend is saying. He’s claiming that HMRC routinely trawl through 7 years’ worth of bank statements for every deceased person. And that they’ll claim that a £20 payment to someone was a cash gift.

An uncle gifted my DD a sum of money and when he died the solicitor dealing with probate asked how long ago it was, I checked back and cross referencing his account with hers determined it was more than seven years before. If we hadn't mentioned the gift I'm not sure it would have come to light, it was only the solicitor dealing with probate looking at his accounts, and in fact it was mainly me telling him about them. If HMRC were suspicious I guess they could look back through accounts, but it took me a while to find it and I knew what I was looking for.