Inheritance Tax tip re records.

[nicholsong]

I enquired today of HMRC what evidence do they need on my death that I have gifted £3,000 in any tax year for it to be free of IHT.

The answer was 'Just make and keep a note to be available to your Executors.'

It surprised me that the answer was so simple.

 

[georgio]

I enquired today of HMRC what evidence do they need on my death that I have gifted £3,000 in any tax year for it to be free of IHT.

The answer was 'Just make and keep a note to be available to your Executors.'

It surprised me that the answer was so simple.

It would appear to me that they are not that interested if it isn't in any of your accounts, but don't bank on it

 

[suavecarve]

I enquired today of HMRC what evidence do they need on my death that I have gifted £3,000 in any tax year for it to be free of IHT.

The answer was 'Just make and keep a note to be available to your Executors.'

It surprised me that the answer was so simple.

Thanks Dad

 

[Boringfrog]

"In the tax year 2019 to 2020, 3.76% of UK deaths resulted in an Inheritance Tax (IHT)"

 

[Spriddler]

"In the tax year 2019 to 2020, 3.76% of UK deaths resulted in an Inheritance Tax (IHT)"

That's probably so few because most owe a fortune in finance for their Morelo's.

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[Otter Spotter]

Records can be a note signed and dated confirming the amount of gift and the reason, a receipt from the recipient.
Only around 10% of estates are investigated as long as the paperwork looks reasonable at submission. Of those that are investigated, if there are records kept by the deceased and they are signed dated then the investigation will not take long.

 

[Spriddler]

The answer was 'Just make and keep a note to be available to your Executors.'

Why do you need to keep a signed note? Surely payments will show on your bank statement?

 

[EuroTrotters]

I enquired today of HMRC what evidence do they need on my death that I have gifted £3,000 in any tax year for it to be free of IHT.

The answer was 'Just make and keep a note to be available to your Executors.'

It surprised me that the answer was so simple.

You already have my address. Happy to pay any tax liabilities

 

[nicholsong]

Records can be a note signed and dated confirming the amount of gift and the reason, a receipt from the recipient.
Only around 10% of estates are investigated as long as the paperwork looks reasonable at submission. Of those that are investigated, if there are records kept by the deceased and they are signed dated then the investigation will not take long.

HMRC did not mention a receipt but it seems a sensible move - thanks for that.

Why do you need to keep a signed note? Surely payments will show on your bank statement?

Payment could be reversed soon after.

You already have my address. Happy to pay any tax liabilities

I think a retired teacher on a Polish teacher's pension is more deserving than you Trevor.

 

[Otter Spotter]

Why do you need to keep a signed note? Surely payments will show on your bank statement?

Obviously your bank statement will not show the reason for the payment just that it was made and if you reference it using a name. The bank statement will help prove the payment.

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[dazandandrea]

Something ive been looking into recently following my dad passing away last year and mom not doing too well.
I find it sick that as a couple they worked their way up from literally nothing only to be made to account for how they spend the money they earnt through hard work in their last years .
Having said that . Keeping records and receipts etc .

 

[Otter Spotter]

HMRC did not mention a receipt but it seems a sensible move - thanks for that.

Payment could be reversed soon after.

I think a retired teacher on a Polish teacher's pension is more deserving than you Trevor.

I did meet a salesman(read conman) who wanted to sell a IHT mitigation scheme based on using the gifting regime. His business would provide 100s of peoples names and a receiving account which you would gift to, then they took a small cut and the balance paid back into the ‘gifters’ alternative account. I fired him off as I suspected that very quickly the ‘balances’ could be mis appropriated in addition to the fact that HMRC would soon get wind of the scheme and then they would do a runner with any monies that was going through the washing machine

 

[Otter Spotter]

Something ive been looking into recently following my dad passing away last year and mom not doing too well.
I find it sick that as a couple they worked their way up from literally nothing only to be made to account for how they spend the money they earnt through hard work in their last years .
Having said that . Keeping records and receipts etc .

Only if you are going to claim the allowances. IHT is a voluntary tax , plan when alive and it doesn’t have to be paid

 

[Spriddler]

Obviously your bank statement will not show the reason for the payment just that it was made and if you reference it using a name. The bank statement will help prove the payment.

Does the reason for the payment matter? Surely 'they' would question any large payment of say more than a couple of thousand within the preceding qualifying 7 years? It could've been for a holiday in Florida (or a new windscreen or cambelt for the Hymer - or a week at a CAMC site).

 

[Otter Spotter]

Have read of this

Using allowances to give tax free gifts​

Each tax year, you can also give away some money or possessions free of Inheritance Tax. How much is tax free depends on which allowances you use.

Annual exemption​

You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’.
You can give gifts or money up to £3,000 to one person or split the £3,000 between several people.
You can carry any unused annual exemption forward to the next tax year - but only for one tax year.
The tax year runs from 6 April to 5 April the following year.

Example​

In the 2019 to 2020 tax year, Mark gave £2,000 to his daughter Jane. If he died within 7 years of the gift, this would use £2,000 of his annual exemption.
In the following 2020 to 2021 tax year, Mark gave £4,000 to his other daughter Sarah. If Mark died within 7 years of the gift, this would use his annual exemption of £3,000 plus the £1,000 of annual exemption left over from the previous tax year.
Even if Mark dies within 7 years of giving these gifts, there’s no Inheritance Tax to pay.

Small gift allowance​

You can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.
Birthday or Christmas gifts you give from your regular income are exempt from Inheritance Tax.

Gifts for weddings or civil partnerships​

Each tax year, you can give a tax free gift to someone who is getting married or starting a civil partnership. You can give up to:

• £5,000 to a child
• £2,500 to a grandchild or great-grandchild
• £1,000 to any other person

If you’re giving gifts to the same person, you can combine a wedding gift allowance with any other allowance, except for the small gift allowance.
For example, you can give your child a wedding gift of £5,000 as well as £3,000 using your annual exemption in the same tax year.

If you make regular payments​

You can make regular payments to help with another person’s living costs. There’s no limit to how much you can give tax free, as long as:

• you can afford the payments after meeting your usual living costs
• you pay from your regular monthly income

These are known as ‘normal expenditure out of income’. They include:

• paying rent for your child
• paying into a savings account for a child under 18
• giving financial support to an elderly relative

If you’re giving gifts to the same person, you can combine ‘normal expenditure out of income’ with any other allowance, except for the small gift allowance.
For example, you can give your child a regular payment of £60 a month (a total of £720 a year) as well as using your annual exemption of £3,000 in the same tax year.

The 7 year rule​

No tax is due on any gifts you give if you live for 7 years after giving them - unless the gift is part of a trust. This is known as the 7 year rule.
If you die within 7 years of giving a gift and there’s Inheritance Tax to pay on it, the amount of tax due after your death depends on when you gave it.
Gifts given in the 3 years before your death are taxed at 40%.
Gifts given 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.
Taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold.

Taper relief​

Years between gift and death	Rate of tax on the gift
3 to 4 years	32%
4 to 5 years	24%
5 to 6 years	16%
6 to 7 years	8%
7 or more	0%

Giving gifts you still benefit from​

If you give something away but still benefit from it (a ‘gift with reservation’), it will count towards the value of your estate.
Gifts with reservation include:

• giving your home to a relative but still living there
• giving away a caravan but still using it for free for your holidays
• giving away a valuable painting but still displaying it in your house

Read further guidance on when a gift with reservation counts towards the estate’s value.

Keeping records of gifts you’ve given​

The person who deals with your estate will need to work out what gifts you gave in the 7 years before your death. You should keep the following records:

• what you gave and who you gave it to
• the value of the gift
• when you gave it

How Inheritance Tax on a gift is paid​

Any Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift.

Example​

Sally died on 1 July 2018. She was not married or in a civil partnership when she died.
She gave 3 gifts in the 9 years before her death:

• £50,000 to her brother 9 years before her death
• £325,000 to her sister 4 years and 2 months before her death
• £100,000 to her friend 3 years before her death

There’s no Inheritance Tax to pay on the £50,000 gift to her brother as it was given more than 7 years before she died.
There’s also no Inheritance Tax to pay on the £325,000 she gave her sister, as this is within the Inheritance Tax threshold.
But her friend must pay Inheritance Tax on her £100,000 gift at a rate of 32%, as it’s above the tax-free threshold and was given 3 years before Sally died. The Inheritance Tax due is £32,000.
Sally’s remaining estate was valued at £400,000, so the estate would pay Inheritance Tax of 40% on £400,000 (£160,000).
Read further guidance on when a gift counts towards the estate’s value, how to value it and how much Inheritance Tax may be due.

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[Spriddler]

Thanks Otter Spotter .
Crumbs, 40% on the qualifying gifts and the IHT tax-attracting nett value of the estate is one heck of a grab by the thieving Gov't.

 

[nicholsong]

Dave Otter Spotter

Spot on otter!

 

[nicholsong]

Only if you are going to claim the allowances. IHT is a voluntary tax , plan when alive and it doesn’t have to be paid

As a bachelor with no relatives or wife and a house in SW London I think that even with tax planning it would be difficult to avoid IHT, except for giving all away over £325,000 and insuring the rest.

Does the reason for the payment matter? Surely 'they' would question any large payment of say more than a couple of thousand within the preceding qualifying 7 years? It could've been for a holiday in Florida (or a new windscreen or cambelt for the Hymer - or a week at a CAMC site).

I started this thread about the allowance of £3,000 in any tax year. That requires no reason.

Read Otter Spotter post #15 in detail and all is explained there.

 

[Otter Spotter]

As a bachelor with no relatives or wife and a house in SW London I think that even with tax planning it would be difficult to avoid IHT, except for giving all away over £325,000 and insuring the rest.

I started this thread about the allowance of £3,000 in any tax year. That requires no reason.

Read Otter Spotter post #15 in detail and all is explained there.

Don’t forget, if you own assets abroad they are supposed to be included too

 

[nicholsong]

Don’t forget, if you own assets abroad they are supposed to be included too

Mine are all in UK, except MH and that could be soon.

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[Podney]

Otter Spotter . It’s worth mentioning how Sipps can be used for IHT planning,by allowing the fund remaining to pass down generations. I’ll leave that for you to expand upon!

 

[SpeedyDux]

As a bachelor with no relatives or wife and a house in SW London I think that even with tax planning it would be difficult to avoid IHT, except for giving all away over £325,000 and insuring the rest.

I started this thread about the allowance of £3,000 in any tax year. That requires no reason.

Read Otter Spotter post #15 in detail and all is explained there.

Your best IHT avoidance strategy is to marry Basia - but you know that already.

 

[The Wino]

Otter Spotter . It’s worth mentioning how Sipps can be used for IHT planning,by allowing the fund remaining to pass down generations. I’ll leave that for you to expand upon!

And of course it's just been opened wide up by the relaxation in pension pot limits. Unfortunately for people already retired unless there's a change I'm unaware of the limit for those not working is still very small.

 

[snailtrailer]

Otter Spotter
I have been keeping records of the gifts made to our three grown-up children for many many years in excess of the £1,000 each free of Inheritance Tax. What interests me is the paragraph in the article you posted "making regular payments". The money we give them is paid regularly - the same amount - on the same day of the month SO should I emphasise in my notes this money is to support them. In effect we are gifting it to them from rent received so would be classed as income not capital. In simple terms does this mean that these payments would be exempt from IHT completely?

 

[bigtwin]

And of course it's just been opened wide up by the relaxation in pension pot limits. Unfortunately for people already retired unless there's a change I'm unaware of the limit for those not working is still very small.

The annual maximum contribution to your pension has been increased from £4k to £10k.

Ian

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[The Wino]

The annual maximum contribution to your pension has been increased from £4k to £10k.

Ian

As I said I haven't looked at the details. The article I saw said that the limit for those already in drawdown had been increased but it didn't mention if the limit for those without earned income remained the same. It would make sense to increase the limit in drawdown but not for unearned income as it would encourage people who have taken early retirement back into work rather than just recycle their drawdown money if they have savings outside a pension to live on. But who says that government decisions have to make sense!

 

[PeterCarole29]

Forgive I haven’t read all the posts
Could I set up 4 accounts that are joint savings accounts for our four adult children so I am named as joint for each child and then pay in each year what allowances allow
This way if we ever needed the money we could still get to it that’s if they didn’t spend it

 

[The Wino]

Forgive I haven’t read all the posts
Could I set up 4 accounts that are joint savings accounts for our four adult children so I am named as joint for each child and then pay in each year what allowances allow
This way if we ever needed the money we could still get to it that’s if they didn’t spend it

You could but any spouses would have an equal claim to it as your children.

 

[GyroPilot]

If it's under £3000 per year they're not interested. They'll even credit you the £3000 against a larger gift, if it was unused that year.

You can even carry forward one unused year to make an exempt £6000 gift.

It was Roy Jenkins who said:-
"Inheritance Tax is only paid by those who distrust their heirs more than they dislike the Taxman..."

So, either
i) spend it
ii) give it away in good time
iii) leave Blighty for good, for a low IHT place, like Italy, Jersey, IOM [far easier said than done]
iv) engage a specialist solicitor/accountant to explore complex but legal ways to dodge it, like trusts, or the "undivided share" of the family home.
or...
v) your heirs will have to pay the 40% with a smile

 

[GyroPilot]

Forgive I haven’t read all the posts
Could I set up 4 accounts that are joint savings accounts for our four adult children so I am named as joint for each child and then pay in each year what allowances allow
This way if we ever needed the money we could still get to it that’s if they didn’t spend it

No. You would be "reserving the benefit", which negates the gift in the eyes of the Taxman.

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