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?

The banks have to keep six years worth of records, I have been given statements for bank accounts closed in that time window by the deceased so they are still available.

I also understand that.

What I mean is that the deceased closes their accounts with a bank completely and ends that banking relationship. If the deceased does not keep records that they ever had that banking relationship, how would the testator know to ask that bank at all? The testator cannot send letters to all the hundreds of banks and building societies in the oft chance the testator had previously opened an account with them in the last 7 years.

If it's a bank account that has been used for paying bills, transfers to/from other "known" accounts, or where wages or pensions have been paid into, the executor should have realised that there was a "missing" bank account and used other way to trace it. Very few bank accounts will have existed in isolation with no transfers to/from other accounts, not been used for paying a bill, not been used for money paid in.

If the executor has indeed used due diligence, genuinely checked everything possible they could have checked, traced payments in and out of other known bank accounts, satisfied themselves they knew how (which bank account) bills had been paid and how wages/pensions/benefits had been received, then they'd have a good defence if it turned out that there had been "gifts" or transfers for which there was no evidence at all, and no way of the executor knowing or suspecting that there had been other bank accounts nor other gifts, etc. It's all a matter of the executor taking their legal responsibilities seriously and tracing as much as they can. Like in other legal matters, "ignorance" is no defence, and they can be held liable if they didn't find things that "could have" been found.

The only completely isolated bank account I've ever found out about was a very old ISA account where the deceased had made no withdrawals and no deposits for years. She closed it but instead of transferring the funds to one of her other accounts, she transferred it to her daughter's account. So, no amount of "due diligence" over the past 7 years would have found it as there were no transfers in/out of any of her other accounts to say it even existed. Luckily, it flagged up on a list of accounts provided by her bank when we asked for full bank account details and statements for the 7 years so we picked it up that way. But if her ISA had been with a different bank completely that she'd never had any other bank accounts with, we'd never have known. The daughter "claimed" to have forgotten ever receiving the money.

When doing "professional" work on probate etc., it's now one of the things we specifically ask close relatives and get them to sign a disclaimer form that they've not received any gifts etc from the deceased within the last 7 years!

Thanks for explaining. That makes sense.

I dare say a professional executor (who is receiving fees for their work and likely to be dealing with higher value estates) will be held to a higher standard than a 'lay' executor.

There are companies that offer financial asset searches too that may locate previously unknown accounts.

Those companies will not be cheap and makes sense when you are tracing assets in the context of a divorce or fraud.

I would say using those company's services and draining the estate's funds on a fishing expedition are disproportionate in the context of an executorship?

Indeed, that's the legal position. And it's exactly why it's very annoying when a professional, like a firm of solicitors is criticised for charging a few thousand pounds for dealing with an estate and you get some smart arse saying that "anyone" can do it and they did it for free and it only took them 3 hours! They just don't realise the "legal burden" that a professional takes on to actually do the job properly is at a different level to the "legal burden" of a son or daughter who, yes, quite frankly could get away with shoddiness and take the risk of things not being quite right.

You can guarantee that there'll be a son and daughter only too keen to sue a solicitor or accountant for negligence if they get landed with a tax and penalty bill from HMRC for not declaring a gift etc even though the professional had no realistic way of knowing without spending hours and hours sifting through paperwork (that the next of kin would probably not have helped sort out), phoning/writing to all kinds of firms and agencies, trying to get a full picture.

Would you say that if they cost £2.5k but "found" a long lost bank account with £10k sat in it, or share certificates worth £10k??

"There is an estimated £82 BILLION in dormant bank accounts, building society accounts, pensions, investments, and insurance policies in the UK."

I live away so my grandmother transfers money to me multiple times a year (around £100 a time), for my birthday present, my DC’s birthday presents, our Christmas presents (so £200 in one go) - she asks me to buy things and wrap them from her as she’s very elderly, and also pocket money for my DC as she doesn’t see them in person very often. Family living near her get the same but get all of theirs in cash. So over the year that’s multiple payments to my account but it’s not all for me!

@tealbead - probably useful to keep a note then as to who the money was for each time.

However, in addition to the unlimited £250 gifts, your grandmother can also give away tax free up to £3000 each tax year but that can’t be combined with a de minimis gift (so the maximum any one recipient could receive in a year that is tax free would be £3000 not £3250). The £3000 can be split across multiple recipients eg £1000 to each of three children.

Pay 2.5K to an asset tracing company in order to pay the HMRC 40% of 10,000 which might otherwise already have been paid free of tax to the beneficiary?

I am talking about the incentives at play in relation to a determined testator as opposed to a shambolic one. You would be talking about the latter.

Would be interested to know how often professional executors use asset training companies and what would be the trigger to use them and size of estate.

I can see why professional executors have to search high and low to not be accused of breach of their duties. It is a lot of work to do a good job for a few thousand.

One way of looking at it is that if the testator uses a professional executor, they are buying the professional's insurance policy.

Thank you. We get significantly under £3000 total in a year between us, so hopefully it will be ok then.

@blueshoes

Would be interested to know how often professional executors use asset training companies and what would be the trigger to use them and size of estate.

It's a decision made on a case by case basis. No hard and fast rules. It's entirely at the discretion of the executor(s) based on what information and documentation is available. It also has to be a balance - it can be cheaper just to appoint the asset tracing firm rather than spending dozens or hundreds of hours ourselves contacting different organisations, sifting through bags/boxes of random paperwork, etc. As you say, very different whether the deceased had shambolic records or whether there is evidence/suspicion of deliberate tax evasion. Must say it's not really something I've seen done very often, so certainly not a "go to" instruction without a proper evaluation of what you're presented with. Also probably not required at all if you've seen nothing to suggest any wrongdoing or "lost" assets and you can easily get all the close family to sign a disclaimer saying they've had no "gifts". After all, it's not the executor's job to disbelieve the people who claim they've had no gifts - we're not doing HMRC's job of "policing" the probate and IHT returns, we're just preparing them according to the information presented to us, augmented by enquiries we make. If it turns out a close family member has received a gift, lied to us about it, and gets caught by HMRC, then that's their problem, not ours, as long as we had no suspicions and no evidence to suggest otherwise. Back to due diligence. Of course, if a close family member refused to sign such a disclaimer, then that puts the executor on alert and may trigger additional digging work and maybe, yes, an asset tracing firm if there was a genuine suspicion of missing assets and/or undeclared gifts.

From memory, I think the most common situation of asset tracing firms being used is where a close family member simply doesn't believe the estate is as small as it appears, i.e. they "know" that their mother had some shares or they knew they had an investment account or a life insurance policy, but there's been nothing found in the paperwork, no sign of it when looking through bank statements, etc., and the family member didn't know any details, so without contacting literally every company, bank, insurance firm, etc., there'd be no way of finding it.

The PI insurance would only apply if the executor didn't do a thorough job though. If there had been any dishonesty from close family members, beneficiaries, etc., or if the deceased had deliberately arranged their affairs to "hide" any assets or gifts, then the executor wouldn't be at fault. It's all down to "due diligence" which means the executor taking reasonable steps to make the probate and IHT return accurately. What is reasonable will depend on the circumstances of the individual case.

Why six years, if seven are needed for IHT purposes??

Why the lack of joined-up thinking?

(Not your fault, I know!)

You'd have to ask the politicians and civil servants who made the relevant laws!

There's lots of that kind of anomaly within the UK legislation, not just for taxes, but for other things too.

Lack of "joined up" thinking is rife at Westminster.

Perhaps better just to heed the advice of my first taxation lecturer when I was doing my accountancy exams. First lesson and his first comments were, to paraphrase, "don't waste your time and energy looking for any logic behind the tax laws - all you need to know is what the laws say and follow the wording of the laws". And after 40 years working in tax, his comments have served me well. It serves no purpose at all to question the logic/rational of the tax laws as there's nothing you can do about it.

Thanks, that makes sense

That makes sense too!

Your earlier post did actually explain to me for the first time why (when we realised there was one more bloody bank account to chase up some months into the probate process) we didn't get sent the full 7 years' worth. Presumably it was 6 years minus however long it had already been since death.

We just put it down to 'annoying bank', as they'd originally sent just a single sheet of paper saying the account was zero.

Off topic, but another common problem of left hand not knowing what the right is doing is local authorities re "reasonable adjustments" for business disability access conflicting with planning permission, building regs and conservation areas. Where a business has no choice but to make alterations to a building, i.e. install a ramp, widen the door, etc., but because it's listed or in a conservation area, the council won't give permission for the work to be done. You can spent months going round in circles with different officers in the council (and planning consultants) but they won't talk directly with each other to thrash out a solution - the poor sod running the business ends up piggy in the middle, passed from pillar to post, ending up just passing messages from one officer to another. When that happened to me, I just ended up moving premises. My previous office ended up empty for years as the "problem" was basically put back at the feet of the landlord, who I think preferred to leave it empty with no revenue rather than have to deal with the council.

@taxguru

That sounds like a quote from my tax lecturer - initials LD - may have been the same one - same time!

Maybe, I can't remember their name unfortunately, too long ago. It wouldn't surprise me if it wasn't a pretty common way of starting the course across lots of different institutions back then. May even have been in the preface of some text books.

Funny thing is that in more recent years, "younger" lecturers on CPD courses etc (typically 30-40 year olds) have tied themselves in knots trying to justify tax laws, court cases, etc during the lectures to us older folk. Typically someone attending the course will ask a question about some nonsensical piece of tax law or court case and instead of the lecturer just batting back the question with the "ours is not to reason why" response, go down a rabbit hole trying to explain the inexplicable. It looks like more recent tax lecturers in the Unis etc don't "advise" the same way these days and don't tell their students to just "accept it" and move on. There are quite a few smirks and knowing nods between us oldies at the courses when the lecturer starts getting tied in knots and just digs themselves in deeper - I know they're trying to be helpful, but it just muddies the waters and causes more confusion (not to mention wasting time). I far rather the approach of "it is, so accept it" which is, realistically all anyone can do unless you're in Parliament or the civil service and have the power to influence change!

Plus if you haven't used up your allowance in one year, you can carry it over to the following year.

You'd only pay CGT on any increase in value since death so depending on when she died, not a huge amount