Gift Question

[Dupont]

Hello everyone, I am hoping someone can help me with a couple of questions regarding monetary gifts from my Father?

He has given myself, brother and sister £1000 each recently and he did the same in the last tax year. He is of ill health but has mental capacity to make his own decisions.

Is he entitled to give us these gifts? Are we allowed to accept them and do we have to declare them? Also, are there any inheritance tax implications should he pass away?

[Lootman]

Is he entitled to give us these gifts?

Yes

Are we allowed to accept them and do we have to declare them?

Yes, and no need to declare.

Also, are there any inheritance tax implications should he pass away?

No because the gifts total no more than £3,000 which is the maximum amount that can be gifted from capital annually without any IHT implication. Presumably chosen for that reason, which he might have mentioned but evidently did not.

[Dupont]

Many Thanks for your reply.

I had read somewhere that if he died within 7 years of making the £1000 gift to each of us then it would be liable to inheritance tax, but I guess that is only to amounts after his £3000 annual allowance?

[pje16]

Correct

[Lootman]

Many Thanks for your reply.

I had read somewhere that if he died within 7 years of making the £1000 gift to each of us then it would be liable to inheritance tax, but I guess that is only to amounts after his £3000 annual allowance?

Correct, the 7 year rule would not apply given the £3000 annual allowance.

Now, if he made further gifts from capital to other parties that you were not aware of and which fell outside the other allowances for small gifts, then his estate's executor might have to take account.

[Dupont]

Many Thanks.

I believe he stays dead on the £3000 a year allowance so far as gifts go.

[Eboli]

It is worth adding two points.

1. The so-called annual exemption of £3,000 is applied to chargeable transfers in chronological order. So there is a hidden assumption that in the tax year of the 3 x £1,000 gifts that no previous chargeable transfers has been made to which the annual exemption could be in future * applied in priority including any failed potentially exempt transfers.

2. That you may carry forward forward any unused annual exemption in any tax year by one year and one year only.

* This is best explained by example. Suppose A decides to make a potentially exempt transfer of £100,000 in the tax year 2021/22 on 1 January 2022 having made no previous gifts in the past 7 years. Then A makes 3 x £1,000 gifts to B, C and D on 1st February 2022. It is dangerous to presume that the gifts to B, C and D are covered by the annual exemption until 1st January 2029. If A dies before that date then his potentially exempt transfer on 1st January 2022 becomes chargeable and the annual exemptions for 2020/21 and 2021/22 are applied to it in priority (by chronological ordering) and hence A makes a chargeable transfer of £94,000 on 1 January 2022 and all the subsequent gifts made in that tax year have become chargeable.

Eb.

[Dupont]

He does make transfers to our accounts to cover various expenses like shopping etc that would show on his and our statement from the bank, but the only gift that I know of is a single payment if £1000 to each of us 3 children.

[pje16]

I very much doubt that re-imbursements count (ie not taxable)

[Lootman]

It is worth adding two points.

1. The so-called annual exemption of £3,000 is applied to chargeable transfers in chronological order. So there is a hidden assumption that in the tax year of the 3 x £1,000 gifts that no previous chargeable transfers has been made to which the annual exemption could be in future * applied in priority including any failed potentially exempt transfers.

2. That you may carry forward forward any unused annual exemption in any tax year by one year and one year only.

* This is best explained by example. Suppose A decides to make a potentially exempt transfer of £100,000 in the tax year 2021/22 on 1 January 2022 having made no previous gifts in the past 7 years. Then A makes 3 x £1,000 gifts to B, C and D on 1st February 2022. It is dangerous to presume that the gifts to B, C and D are covered by the annual exemption until 1st January 2029. If A dies before that date then his potentially exempt transfer on 1st January 2022 becomes chargeable and the annual exemptions for 2020/21 and 2021/22 are applied to it in priority (by chronological ordering) and hence A makes a chargeable transfer of £94,000 on 1 January 2022 and all the subsequent gifts made in that tax year have become chargeable.

Technically that might be true but the odds of the average executor picking up on such an obscure nuance is trivial.

Heck, most of the professionals I have encountered would have let that go. The real world just does not operate that way.

[Dupont]

We (his children) are the executors of his will.

Will that make any difference?

[pje16]

Difference to what?
if you mean the tax rules, then no, being executor give you no extra exemptions

[Lootman]

We (his children) are the executors of his will.

Will that make any difference?

Difference to what? If you mean the tax rules, then no, being executor give you no extra exemptions

It doesn't change the tax rules but it makes a difference in that it makes things simpler to operate.

For example if the children jointly hold the LPA and they are joint executors and they are the only and joint beneficiaries, then there is no need to involve any third parties upon the mother's death. This will save time, effort, form-filling and the risk of problems arising.

If (say) they used the LPA prior to death to transfer the mother's assets to themselves then there might not even be a need for probate. And therefore no need to pay a fee to the probate office, nor possibly to a solicitor to help deal with that office.

There is something to be said for keeping these things all in the family and not having to deal with third parties with possibly different or conflicting priorities.

[Dupont]

I think this is the reason my father has done it this way.

He isn't keen on outsiders knowing his business.

[Lootman]

I think this is the reason my father has done it this way.

He isn't keen on outsiders knowing his business.

I am like that as well. I always liked the line from The Godfather where Marlon Brando says:

"Never let anyone outside the family know what you are thinking".

[DrFfybes]

If (say) they used the LPA prior to death to transfer the mother's assets to themselves then there might not even be a need for probate. And therefore no need to pay a fee to the probate office, nor possibly to a solicitor to help deal with that office.

Unless, when the will is finally revealed, one turns out not to be a beneficiary.

Paul

[Lootman]

If (say) they used the LPA prior to death to transfer the mother's assets to themselves then there might not even be a need for probate. And therefore no need to pay a fee to the probate office, nor possibly to a solicitor to help deal with that office.

Unless, when the will is finally revealed, one turns out not to be a beneficiary.

Ah but in the case where a parent wishes to disinherit one of their kids then it would not be likely that the £1000 gifts would have been made to them either.

I cannot imagine disinheriting one of my kids but, if I were to do that then I would revoke their LPA, remove them as a Will executor and beneficiary, and not make gifts to them either.

[scrumpyjack]

If the parent is making these £1,000 gifts regularly, which seems to be the case, and subject to the parent's income and expenditure, they may even be covered by the 'gifts out of income' exemption and not need to use any of the annual allowance.

[Dupont]

That is a good point. He gifts us from his private ex workplace pension I believe.

[Lootman]

If the parent is making these £1,000 gifts regularly, which seems to be the case, and subject to the parent's income and expenditure, they may even be covered by the 'gifts out of income' exemption and not need to use any of the annual allowance.

True although Dupont indicated that these are the only gifts being made. In that case it would be simpler to regard them as gifts from capital as then they would not need the documentation and reporting requirements for benefiting from gifts from income.

What it might really mean is that the father could be making larger gifts without worrying about IHT, i.e. the annual £1,000 gift from capital to each child plus a separate annual gift to each child from surplus income up to the maximum he can get away with claiming.