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?

I think they are employing more people at HMRC. As Labour seem to believe that any money people have is theirs unless they graciously allow us to keep some, I can absolutely imagine them being more ruthless in ensuring nothing is missed.

Silly question, but what happens if you don't do any of this? What happens? I'm a complete nightmare with figures, there's no way I could do it. Do you have to pay an accountant in that case?

You're allowed to gift up to £3k.

This just makes me think you already know this and are looking to game the system as no one genuinely thinks £20 will get them in trouble.

Your father can gift you £3K per year without any penalties to you or him. I would be questioning why your father thinks this is the case. (From experience the start of dementia) If you have not got it already I would be persuading him to obtain POA for himself to protect him. Also to get a will in place again as protection for him & you. If/When he dies there is a will in place your communication with HMRC will be so much easier.

So what happens if there is no property and, say, £30k in the bank?

you don't have to be good with figures to go through some bank statements to look for and total up any gifts. if you can't do that i suggest this is the least of your worries.

probate solicitor should advise on this, if there's anything complicated then engage an accountant

you make sure whoever you're acting as executor for saves their bank statements

or you write to the bank

i don't know why anyone thinks this is difficult. you just go through each line, and if there's any gifts to friends/family you write it down, then total it up.

The professional executors who dealt with my parent's estate wrote to each of us (siblings) and asked if we'd been gifted any sums in excess of £1k in the preceding 7 years. We replied that we hadn't and as far as I know, that was the end of it. My parent's estate was nowhere near the IHT threshold due to the exemptions.

When my current account gets a bit too much in it , l transfer some to a flexible savings account so that it gets a bit of interest but is easily transferred back into current account to spend.
This year l am paying a young relatives Uni boarding fees so am transferring money back from the flexi account to the current. I don't think this should be seen as money coming out of savings but as out of income, but l worry about it like the OPs DF worries.
I also worry that in the future it may be looked on as Deprivation of Assets (no 7 year rule with that) whereas if l spent the money on a cruise or something for myself it would not be taken into account at all. This does not seem right at all!

IHT 403 allows for gifts from excess income. Records must be kept and detailed on P8 of IHT403 form.

The Executors are expected to provide the information.

Thing is, if they’ve written cheques for things all you see is a cheque number not any payee details, so how would anyone know they’ve given it as a gift or paid for a new bathroom or had their drive resurfaced or something?

If there is only £30k - then as long as the deceased hasn't gifted over £300k of cash or assets in the last 7 years, there is no IHT to pay

Basically you can't get round paying tax by just giving away your money

I am an accountant - and now sadly an executor for my sister

I would recommend the Martin Lewis MSE Forum - Death & probate section - for anyone who is getting worried reading this thread. There is a whole wealth of information on there which can guide you

Some estates are complicated and having professional help is sensible. But many you can do yourself if you just take your time and read the guides. There are many law firms out there keen to take your money - but most of the time - you have to do the leg work and they charge £000's just to fill in forms

Every gift over 7 years? Surely not £30 or whatever?

Mmmm no need to be quite so blunt is there? People come on here for help not to be told off

No. From what I've read, "small gifts" up to £250 can be ignored.

The small gifts exemption is a total of £250 during the tax year to the same person but you can make multiple gifts of £250 to different people and they will all be exempt as de minimis.

Donors and recipients of gifts should keep a record of amounts and dates for HMRC.

We're just going through this. I've had the joy of trawling through 7 years of bank statements looking for gifts, plus trying to recreate income/expenditure for the last 7 years from them for the 'regular gifts out of income' section of the IHT form. In our case, those regular 'gifts' were actually life assurance premiums that MiL paid on a policy where DH was the beneficiary (she set this up so that DH had money to pay the IHT bill). Yes, according to HMRC, those premiums she paid counted as a regular gift!

We were able to phone the bank who just sent us out 7 years worth of statements. We were told that HMRC do sometimes request these and the bank confirmed this to us, so we figured we definitely needed to go through them ourselves.

We have the situation where MiL made loads of bank transfers to us, but they weren't gifts - they were from when we bought things on her behalf and she paid us back, e.g. doing her shopping during Covid. We haven't included these on the form, but goodness knows what HMRC will think if they do happen to check those statements. Luckily I have kept records so if asked I can say what all the payments were for.

Quite - it sounds like an onerous task to say the least!

It’s why people often refuse to be executors when there’s nothing much in it for themselves. Also why solicitors fees seem steep when they act as executors. It’s a lot more work than people realise to do it properly. And it needs doing properly because executors are personally liable if they get it wrong, even though no actual fault of their own, hence the need to check through years of bank statements and the usual boxes/carrier bags of random paperwork found in the deceased’s home.

You ask the bank for the names on the cheques or for sight of the cheques. Theyll charge but it may be a necessary cost. That’s assuming you can’t find the cheque stubs in the house. But better for people to keep receipts and invoices so that it’s easier for those left behind to deal with when you die.

Doesn’t matter which account it comes out of. HMRC would compare your income, ie wages, pensions, benefits, investment income and use that as a basis for deciding what payments out were out of income, not which account it came out of.

I did a Deed of Variation to my sister's will so some of my inheritance bypassed me and went straight to my children. As it happens, I'm still here 8 years later but the peace of mind was worth it for a small solicitor's bill. It got me thinking about IHT though and I have since transferred sums to them both (10k each once but usually 2k) as and when. I've set up an email folder with details of all these payments, bank accs and dates etc, to make it easier for them if any are still within the 7 years when I pop my clogs (Labour will fiddle with IHT rules again so this time limit may be extended). As long as you have the mental capacity, I see it that you should take responsibility for your own financial dealings re IHT and keeping good records is a start - I also think they're less likely to nitpick if there's evidence of transparency!

Everything I've read indicate that capital gains tax is payable on any increase in value of the property when we sell it and investments @Chewbecca - where does it say we don't have to?

This is interesting as I will be the Executor for my mum who has also just gifted me £50k towards school fees (in the hope that she's here for at least another 7 years). This is absolutely surplus cash on my mums part just to be clear!

I'm one of four and my siblings don't have kids or any real need for money either to be honest, but this will be treated as an advance on my inheritance. Although mum can't seem to decide if it is or it's just a gift outside of it...

I'm very honest but this feels like a conflict of interest for me a bit.

You only have to declare gifts over £3000 in a financial year. If it's reimbursement it's not an issue though if you regularly get higher value reimbursements from a relative (eg you pay fees and then transfer money) then keep a paper trail! £20 unless several times a week is a non issue