How do I work out inheritance tax on gifts to my children?

Question

My husband died 3 months ago and I'm a bit stuck on the admin concerning his estate. Neither he, nor we as a couple were above the inheritance tax threshold, but in past years we have been able to help the kids out with home improvements, replacing their cars etc. So I now have certain questions that I can't seem to find the answers for on the HMRC website. I understand that there is inheritance tax (on a sliding scale) to be paid on gifts given to the kids.

1) As a married couple, would those gifts be said to be jointly from both of us? If we paid for a new heating boiler from our joint account, for example, would that attract half the amount of tax because half would be attributed to me and I am still alive?

2) Is there separate money for married couples? If I paid the boiler engineer from an account that was in solely in my name, would that be outside the scope of inheritance tax on gifts. (unless I die within the 7 year time frame)

3) if I transferred money from my account into our joint account to pay the heating engineer, would that be seen to have been paid by me, or would it have been from us jointly because I had transferred it to the joint account?

Sorry it's complicated, but there might just be someone out there who can answer this. I don't want to make unnecessary visits to the solicitor or accountant because the solicitor alone is £210 per hour.

Thank you in advance!

Answer 1

Correct, there is inheritance tax on lifetime gifts on a sliding scale but only on gifts made within 7 years of death. Anything given away before that drops out so you can forget it. It's just to stop you getting away with avoiding IHT by giving everything away on your deathbed!



So how much did he give away within 7 years before death, add that to his estate, and if that's still under the threshold you have nothing to worry about. Bear in mind also that anything he left to you totally escapes IHT because you were married (this is the spouse exemption), so when you're working out the value of the estate, you can ignore that completely for calculating the tax. THEN you deduct the threshold as well and see if there is anything still left. If most of the estate goes to you, or if he didn't leave a will it all automatically does on an estate that size, I feel reasonably sure there will be nothing to pay.



If there is still an amount left and there actually is some IHT to be paid, then we start having to consider who owned what proportion of your joint account. It's not automatically half. If, say, he worked and you didn't, so he basically provided all the money in the joint account, it's all taxable as his. If it's more complex than that, HMRC will not bother with the exercise of trying to calculate who put what in down to the last penny, and assume that you owned it half each. So any gifts made out of it are half his. If you paid for the boiler out of your own account, that's definitely a gift from you and doesn't count. And yes, then it comes within YOUR 7 year time frame (and hopefully, with all best wishes to you for your good health, will also drop out in the course of time). If you put the money into the joint account first, maybe for ease of payment, it's still your gift and doesn't count.



There may be no IHT to pay but you'll still have to consider what proportion of the joint account was his, and work out the value of lifetime gifts, in order to fill in the IHT return. It's all still got to go down so that HMRC can see and come to the same conclusion. If there's definitely no tax to pay, it really isn't going to matter much if you or the solicitor get it slightly wrong, is it?



I AM an accountant, and it would be nice to be paid for this, but you can have it as a freebie :)

Answer 2

Transfers between spouses are tax immune. Are these gifts bequests in his will. If the proposed gifts were not specified in his will they will be regarded as a gift by you alone and made after settlement of the estate.

If no gifts are specified in a will everything passes (tax free) to you and then you make gifts.

If you want to get help on the paperwork relating to his estate HMRC technicians will be happy to advise you. Call the phone number on the forms for advice.

If his estate was below inheritance tax limit then you are fine

Answer 3

Thanks to both for answering me- and in such detail. It has been a fast learning curve in subjects I've never had to touch before, so your explanation in words that I am able to understand has been really helpful. Yes, your answer has been worthy of payment Clive, and I am grateful to receive it as a freebie.