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?

"Would I still need to apply for probate?"

It all depends on the individual bank. For example, with Barclays it's £50k. If the total value of accounts is below this figure then they won't need to see proof of probate.

We'd get a junior to sift through the paperwork found in the house

But what do you do now that so much is online?

Incidentally, we found that the banks varied in what information they were prepared to send, and for how long back. I'd just assumed they would be able to supply 7 years of past statements, but one of them (maybe Barclays or Nationwide?) could only send 5 years. HMRC just said that a reasoned estimate would be fine for missing years.

We have always given gifts from a joint account, but clearly described as eg " gift from Mum" or "gift from Dad", which shows up on the statements. Hope this is OK.

@ApriCat

But what do you do now that so much is online?

Not really too much of a problem yet as most people dying are elderly and internet banking etc is a pretty recent thing, so the age group more likely to die, being say 75+ still have lots of things in paper format as they're more likely to have not "opted out" of receiving paper bank statements, paper invoices, etc., and there are still some banks which have retained paper pass books for savings accounts etc or at least paper certificates for ISAs, savings certificates, etc. You usually have to actively provide an email address or register on an App for things to move over to being online only, and the current elderly are less likely to be doing that. Elderly paper are more likely to have a cupboard or drawers of paperwork and more likely to keep all paperwork, whether needed or not. It's just the way they are. (Speaking in general terms, of course some will be highly tech savvy and will indeed be paperless, but at the moment it's pretty rare).

Seen it a few times with middle aged people who've died, and, yes, it's harder, but it just means a lot more "manual" contacting of banks, requesting statements etc and building your own picture of the person's life. If they're mostly or wholly online, then there's more chance of a proper "audit trail" based on the bank accounts and less chance of untraceable cash having been used, so in some ways it makes it easier. At the end of the day, you know their wages or benefits have been paid into a bank account somewhere, so you can ask the employer or benefits agency for the bank details. You know they must have paid their rent/mortgage, utility bills somehow, so again, ask the landlord, mortgage firm, utility firms which bank was used to pay the direct debits. Once you have the "main" bank account where money goes in and out of, you can then start to trace the unusual transactions in/out to other accounts, buying/selling investments, etc. As I say, you're building up a picture. The "deceased" departments of banks, utility firms, employers, governmental agencies, etc can be surprisingly helpful once you've satisfied them that you have the legal right to request information (even more if you're willing to pay them for copies of documents you need!).

As an accountancy practice, the use of "electronic" document storage and retrieval is something else we're really hot on when talking to clients and it's a regular recurring topic in our client newsletters to highlight the risks of not taking your own soft copies of all relevant documents uploaded to at least one additional storage location, whether a portable hard drive or a separate online storage such as dropbox, and more importantly leave the location details and passwords with your will!

Yes, but once you’re dead how does your executor get into that?

They contact the bank's "dead customer" department (each bank will have their own name for their department) directly and get a report/copies of everything relating to the deceased sent to them, either in paper or electronic format. No one is allowed to use the deceased online login details once they've died. The bank will check and take action if there's been a login on or after the day after the date on the death certificate. Everything is frozen once the bank is notified of the death of a customer.

https://www.gov.uk/probate-estate/managing-and-selling-assets

Check out this page. Only gains made after death are relevant to CGT. I.e. immaterial in most cases, it's v unusual to pay CGT. You'd be paying a huge amount of tax if you were paying IHT and CGT on an estate. If it isn't at IHT levels then CGT on growth post death is extremely unlikely.

@TheKneesOfTheBees the CGT is calculated from the date of death of the person so if it takes a year to get it sold then CGT is calculated from date of death to date of sale.

It's £3000 a year. If you give to a few people the total is still £3000.

Where he got the £6000 from is, in the first year you give £3000, you can also use last year's unused allowance. So that particular year the total can be up to £6000.

Or it may be that he read about married couples. A wife can give £3000 a year and so can her husband. Everyone has the allowance.

Ah I see what you mean @Chewbecca - my concern though is that the surveyors valuation at death is much lower than we think we're actually going to get, and £20k lower than the lowest estate agents value. I didn't challenge it at the time because I was told it was the market value rather than the red book value that counted for CGT (and obviously I've had a lot else going on!) but we've got such a wide range of values that I'm not really sure how those would be looked at in terms of the baseline at death for CGT.

You can choose your own valuation based on whatever logic/basis you like. All you need is some kind of "reasonable" reason for the valuation you use in probate. That can be based on recent sold house priced for similar properties in the area, or screen shots of similar houses for sale in that area around the time of death, or an estate agent's informal valuation, etc. It doesn't have to be a formal valuation by a surveyor and if you do have a formal valuation, you don't actually need to use it if you feel it's wrong.

You also have the ability to change the values used in probate up to two years after the date of death. So if, say, you use a figure of £200k in probate, but then manage to sell it for £250k a year later, you can substitute the original figure and use £250k instead as long as there are no other reasons for the difference, such as, say, renovating or extending it, planning permission, something affecting the area, such as proposals for a new railway station or to demolish an eyesore of a industrial building and of course general house price inflation over that year. So basically it's got to be "like for like" in terms of house condition, market conditions, etc and you can substitute the selling price as probate value, on the grounds that the value used "must have" been wrong if the price is materially different once sold without any external reason for the difference.

In reality, HMRC are highly unlikely to challenge minor changes to a value if the property is sold within that 2 year timescale, as they know that any valuation is always a "finger in the air" estimate anyway even if done by a professional such as a surveyor.

Yeah, unless we are talking big numbers, I would ignore!

Thanks @taxguru and @Chewbecca - really useful, that is sort of what my research has suggested but then I have occasional moments of anxiety and confusion!

Proof of identity and bank details is what currently taking my attention though, I thought once we actually had probate the next stage would be fairly easy, but no!

Unless they banked with the Halifax who won’t give you any information until they have spoken to the account holder.
Yes I had mentioned three times that my mum was deceased!
Some banks are good some are absolutely appalling.

I have just done this, you have to list gifts over £250 for IHT. Gifts can be given up to £3k per year. Small gifts under £250 still come out of the £3K. You can also give regular amounts each month out of income provided it is out of surplus and you had enough to maintain your usual standard of living, they usually want to see a pattern over 3-4 years.

https://www.taxadvisermagazine.com/article/normal-expenditure-out-income-exemption

My mother had accounts and investments with Halifax. They were brilliant to deal with. You just have to go straight to the bereaved dept and not waste time with the branch staff nor normal phone lines, neither have a clue. Bereavement depts at most banks are generally really good to deal with.

That is if there is a bank statement lying around.

If someone closes a bank account (especially if it was to remove an audit trail), they would discard old bank statements and the app. So how would the executor know where to go looking?

Really?

IHT was paid on my sister's house as part of her estate on the For Sale price. A year later it sold for £100k less and the solicitor received a refund from HMRC.

@Fairyliz @taxguru the bereavement department at the Halifax were so poor when I was dealing with my mum's estate that I ended up raising a complaint, that was all dealt with and seemingly sorted. I was sent back to the department and they did the same thing again! They just kept saying she was still alive and then asking me to go to a branch (when I went in they said the didn't 'do death').

The complaints' department became involved again and I ended up with compensation.

Truly shocking service across a number of interactions, it made a difficult period for me much worse.

We had problems with the Halifax as well, been told different things by different members of staff, and I spent half an hour on the phone ended up in tears with a woman who insisted she couldn't talk to me about myDM's account, she could only talk to my brother, but it was my bank account that funeral expenses were being paid into so I was pointing out that my DB could not talk to them about my account. Eventually she came back on the line and said she was just wrong, she was very apologetic, but perhaps the staff are not very well trained. Then all of a sudden we just received the money when originally we were told we had to wait for probate.

Barclays bereavement service have been really helpful to deal with. I applied for the last six years of bank statements and cheque fronts for specific cheque numbers for payments so that I could trace any gifts that I didn't know about.

As I say, there'll be a transfer between accounts when a bank account is closed. Very rare for someone to close a bank account these days and take the funds in cash. With any bank transfer, one bank can tell you the sort code and account number of the bank account that the money was paid into/out of, so you can then trace it. Also, again as I said, other bodies can tell you what bank account wages, benefits or pensions were paid into, utility firms can tell you what bank account was used for direct debits or standing orders, as can a mortgage provider or landlord. All the information is out there - the executor just needs to ask! Checking the estate is part of the executors job and that includes checking for PETs and gifts in the 7 years prior to death. If the executor isn't able to do what is required or can't be bothered, they should relinquish the role of executor as they can be personally liable if they get it wrong!

You'd like to think that the extra HMRC staff would be targeted on the "big" stuff first.

My experience of the past 20 years or so whilst I've had my own practice is that they're not remotely interested in anything "small" whether for income tax, VAT, NIC, CGT nor IHT. They're concentrating their efforts on things that will yield plenty of tax if they find errors or deliberate evasion.

I've only had one case in the past two decades where the tax inspector involved was nit-picking re trivial matters, and he turned out to be a newly qualified one who was "cutting his teeth" on some random cases just for the experience. After the first couple of letters from him asking for bonkers information and explanations, I wrote a firm assertive letter back, politely telling him not to be so bloody stupid (not quite so blunt), and then received a closure notice. One of his questions was asking where a sum of £5.75 paid into the bank account had come from! I had to point out that even if it had been undeclared income, the tax/nic on it wouldn't even have covered the cost of the paper and stamp to send the letter asking the question and the tax demand that would have been raised to ask for roughly £2 of tax/nic!! Thankfully, such stupidity is very rare.

I understand what you are saying and that people do not transfer out in cash.

However, the final transfer (if it is to avoid duties) is likely to be a beneficiary's bank account. As I explained, the executor does not know about the closed bank account to ask it for the final bank statement because all records are no longer kept by the testator. The executor will not be asking nor will they be entitled to see 7 years' of the recipient's bank statement (who may or may not even be a beneficiary under the will).

Not saying the HMRC does not have their own access to bank records but I can see how such payments via since closed accounts can slip by the executor, however diligent they are.