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?

Going forward tho’ you can bet this spiteful government will recruit a whole load more pen pushers in HMRC -even though their inflated salaries and pensions will cost a lot more than any £20 gift revenue recovered….

They certainly do plan on recruiting more staff at HMRC - 5,000 - to catch more “tax dodgers”.

The 3k per year gift limit is per person - so a father can gift his DC 3k in the same year as the DM can give that DC 3k within the rules. The money just needs to clearly come from their individual accounts rather than a joint account.

@Heatherbell1978 I know this is not the point of the post, but surely if your DM paid the school fees directly then there would not be an issue whether or not this was a 'gift' or not.

I have been an Executor twice in the last few years. Both times estates were over IHT one with Business Relief Shares which were tax free providing the owner lived for over two years. One estate was complex although Probate was granted within 12 weeks.

The other one took a couple of weeks and again was 10% over IHT. There were a handful of £500 Birthday and Xmas presents. I was POA for both. I took advice from probate solicitors in advance of their deaths and both said in their experience HMRC won’t investigate unless there is something glaringly odd.

HMRC cannot answer the phone. They want to complete the probate rather than investigating every single estate for a few quid.

In our local high street there are tons of barbers and nail bars taking cash only. Personally until Labour show they are serious and resource up this sort of abuse I will keep records but won’t be obsessive about it. I found going into banks for anything i.e requesting 7 years bank account is much better than asking for it via the phone.

It does sound strange that he is fussing about £20. Is he under the IHT the threasehold?

And that's why you need to keep records.

My late Mother gave my partner and I and our adult children gifts of £1,000 here and £500 there towards holidays or when I changed my car. Not massively frequent but together with similar generosity to my sister they were probably over the £3k exempt limit.

In addition my sister was doing her shopping and sorting out all sorts of household stuff and being reimbursed when they got around to adding it up.

It was an absolute 'mare to sort out after she died and professional advice was that HMRC would not accept that the payments in their entirety were outside IHT.

In the event, becuase of the various reliefs and the extent to which with good advice things can be wangled we got the estate under the limit.

I am going to be giving pockets of money to my children over the next few years. Will keep records but won’t be obsessed with it. For example we always pay when we take the family out to dinner. Even if the dinners are £200-£300 I am not keeping records. Giving house deposits when the time comes of course.

I had a debit card for Mum. Put loads on it, furniture for her new place, large rental amounts etc. At one point she was paying her rental plus her care home fees.

Made a quick statement for the solicitor to state she was paying her rent plus her care home fees for 2 months which was a significant amount. Think Churchill type retirement complex plus care home fees of £1800 per week plus deposits coming back when she passed. He said don’t over complicate your statement. If they want finer detail they will ask. Best advice I got. I wasn’t asked a single question about anything!

If you completed a form IHT400 then it is box number 30

Gifts and other transfers of value
Did the deceased make any lifetime gifts or other transfers of value on or after 18 March 1986? See IHT400, ‘Notes’

If you tick "Yes" to that question then you also have to complete form IHT403 where you give all the details of gifts made in the previous seven years.

"But how when there's no definition of major gift?"

I'm a bit confused about your use of "major" gift. That isn't mentioned anywhere. A gift is a gift regardless of size. But HMRC are likely to prioritise going after larger gifts than smaller gifts.

I remember a case where the father died and the executors wrote to the children asking if they had received any gifts over the previous seven years. Only one daughter replied saying that she was not aware of anything.

The executors filed the inheritance tax account on that basis and arranged for the inheritance tax to be paid. Nearly two years later, HMRC received a tip-off that the son had £450,000 in a Swiss bank account. Presumably the Swiss bank was sharing details of UK citizens with deposits.

It turned out that the father had transferred the money to the son a couple of years before his death. HMRC claimed an additional £47,000 of tax from the son personally and, in addition, claimed a penalty from him of £87,000.

.

As @SoloSofa24 said earlier, when it comes to gifts that are normal expenditure out of income then, as long as it comes from your regular income rather than your savings, you can gift as much as you like while still maintaining your own lifestyle - it's your money and you can spend it how you like.

I bank with NatWest and they say this:

"You can access your statements as a downloaded PDF file by selecting 'Statements & transactions' from the main menu, where you can download recent or historic statements going back up to 7 years for the account you choose."

I would guess that most other banks have something similar

"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?"

In reality, no. First off, this is only relevant if there is IHT to pay on the estate.

Secondly, if she is paying this money out of her regular income then it is exempt regardless. "Normal expenditure out of income" where you give gifts out of your income rather than your savings are exempt and do not count as gifts for IHT purposes - it's your money and you can spend it how you like.

This is what we have just done. DH usually received the annual £3k exempt gift, but then any other gifts on top of that are supposed to be taxed, so we've declared them, plus any gifts of £250+ to anyone else. If you are claiming regular gifts out of income, you also need to complete 7 years worth of income/expenditure to prove it really was excess income. Putting that together from bank statements has been most time consuming.

What we realised is that it's better to formalise those regular gifts. We're planning to just continue paying DCs the monthly contributions we've been sending them while they're at Uni. And I'll try and keep an income/expenditure sheet updated every year to make it easier for them when the time comes.

It's good to hear @Another2Cats example of the son who was chased and fined. We have been scrupulous about filling in the IHT form, despite some large gifts only missing the 7 year cut off by a couple of months. By the time we submit the form they will have fallen outside the 7 years of bank statements that are available to HMRC. But other records will exist, and knowledge of the potential very large fine (double the unpaid tax) means there was no question that we include them.

The thing is different banks make records available for different time periods. They don't all keep the last 7 years accessible on the apps. Also, closed accounts are usually archived and sometimes the history disappears from the app immediately as soon as the account is closed. And of course, if the person closes all accounts with a particular bank, their app login will be cancelled and there'll be no app access at all for looking back at historical records.

Another factor is that your executor (or family member) is breaching the banks T&Cs if they use the deceased's app login details to access any part of the bank app for whatever reason. They simply shouldn't be using the deceased's login details at all. They need to go through the bank's own "deceased" department to ask for whatever information they need, which will only be provided once proof of being an executor or next of kin etc has been provided to the bank's satisfaction along with adequate proof of their identity etc.

It can all be a real nightmare which is why it's so important that people keep their own records of gifts, financial affairs, etc whilst they're alive to make it easier for those they leave behind. At every firm I've worked at, and now in my own practice, clients are being constantly told to keep their personal records/affairs in order, keep a "log" of gifts etc, keep records of bank accounts, investments, insurance policies, etc., to make life a little easier (and cheaper) for the next of kin who'll have to sort it out.

"They simply shouldn't be using the deceased's login details at all. They need to go through the bank's own "deceased" department..."

Yes, very good point, I didn't think about that.

At every firm I've worked at, and now in my own practice, clients are being constantly told to keep their personal records/affairs in order, keep a "log" of gifts etc, keep records of bank accounts, investments, insurance policies, etc., to make life a little easier (and cheaper) for the next of kin who'll have to sort it out.
Totally agree and if you start now......as well as details of cash gifts (I've made notes of the journey for all cash gifts from capital), I've also got an envelope with a small notepad in. I keep track of all my investments on individual loose pages for each account/bond and when I change/reinvest any, the old page is binned and a new one takes its place. It's a system that's easy to update and will hopefully make probate a bit easier.

Many people close and open bank accounts to obfuscate this.

They can try, but banks can provide details of where monies were transferred in or out to if done by BACS or similar inter-bank transfer. They have the details, and will provide upon request. Even if you write a cheque to move money from one bank to another, the receiving bank will keep the cheque in their records which shows the sort code and account number of the account the money came from, so again, will provide those details upon request.

Accountants, solicitors, executors etc are pretty well accustomed to "auditing" that kind of thing and banks do keep the records and will provide them upon request to their "deceased" department, usually at a cost!

So, unless you withdraw a shed load of cash from one account and pay it into another account in cash across the counter, there is still an audit trail. Of course, these days, banks will report large cash transactions (as required by money laundering laws) and may well insist on sight of proof of the source of the cash (i.e. bank statement showing cash withdrawal that day from another account), which they'll scan and retain on their files. So even cash is traceable unless you do it in huge numbers of small amounts.

I'm an executor on a couple of Wills. And DH is for his parents; which will be fecking complex and let's face it fall to me 🙄🤣 This thread has TERRIFIED me! But thanks! Interesting (and terrifying 🤣)

Thanks. But I meant they transfer monies to a third party and close their account and do not reopen an account with that same bank.
I am an auditor. We don't send audit requests to every single bank on the off chance you ever held accounts else where.

As an executor you sign something to say that all the info in your IHT form is correct to the best of your knowledge.

You can be prosecuted if you deliberately lie or hide taxable transactions.

Is it worth it?

Does it? Could you point me at that on gov.uk anywhere?

(Serious question, not snarky; we've just assumed that a joint bank account is fine for this.)

Also, I've realised reading this thread that we took 'Small gift allowance
You can give as many gifts of up to £250 per person as you want each tax year' to mean we could ignore all gifts under £250 ('as many as you want') not 'up to a total of £250 per person, to as many people as you want'. That's even after phone calls to HMRC to try to clarify every bloody thing about probate. Do they test these statements for possible misinterpretation?

Oh well. The estate was substantially under the IHT limit anyway. I think.

Thank you.
No property to sell, about £35k probably in the bank currently.
Would I still need to apply for probate?
I'm sorry for your loss x

But the payment out will be on a bank statement, and if large enough, the executor should be checking what it was for and where it went. If the executor has done their job properly, they should have been tracing back from the bank accounts open at the time of death, backwards to previous bank accounts identified by transfers in/out. The money that opened every bank account open at the time of death will have been transferred in from somewhere, so that "somewhere" can be traced and that bank account reviewed too, and so on, until you get back the full 7 years, by which time you should have a pretty good picture of what money they had 7 years ago, the source of funds added (i.e. sales of assets, gifts in, wages/pensions in, etc), and the main funds paid out (i.e. living costs, gifts out, purchase of assets, etc etc). The vast majority of transactions will be nothing but "background noise", and it will normally be pretty quick and easy to pick out the big/unusual stuff that needs a bit of investigation. The hard things will be the big transfers between bank accounts, the accounts being opened and closed, etc., but like I say, you just ask the bank for the "half" of the transaction you can see and know about for details of the "other half", i.e. the bank account where the money went to/came from.

I've done loads of these, on a personal basis for both my parents and for my father in law and a grandparent, and for numerous clients on a paid basis, over the years. I once worked at an accountancy practice where we had a solicitor firm as clients who always "subcontracted" these jobs out to our practice, so we became quite adept at doing them. It's a cross between book-keeping, auditing and detective work. Doesn't take as long as you'd think it would as it's pretty easy to ignore/screen out all the irrelevancies and just identify and then find explanations for the big stuff that really matters. We'd get a junior to sift through the paperwork found in the house, such as bills in envelopes, old passbooks, cheque stubs, bank statements, investment reports, life insurance policy documents, guarantees for home repairs, old vehicle registration documents, etc. - once straightened out and organised into categories, very easy for someone more experienced to flick through and identify things that may actually matter. But like others have said, for the vast majority of estates it doesn't matter because the value of the estate is so far below the IHT threshold, it's pretty easy to satisfy yourself that there've been no "gifts" large enough to push it over the threshold.

For gifts to children when does it stop being supporting your children and become a gift? What about paying for their maintenance when they are at uni? Is that a gift of 9k? If not why would helping them if they have a low income at any other time be different?