Tales from the Probate box – Establishing lifetime gifts

George Hay Chartered Accountants were one of the first accountancy firms in the country to obtain a licence to carry out non-contentious probate work. In our monthly column, we give you an insight into the process and provide an update on what is happening in the world of probate and estates.

When looking at Probate, one of the more difficult elements of the process is establishing lifetime gifts; whether money, property or other possessions.

An individual’s Inheritance Tax (IHT) liability is based on the value of their estate at death plus the value of lifetime gifts given within the previous seven years.

It is the duty of the executor to make such enquiries as is reasonable, to establish whether such gifts have been made, to whom and of what value.

The best thing one can do, initially, is to speak to relatives and close acquaintances who may have been on the receiving end of a lifetime gift. If the outcome of conversations is not clear, it is advisable to refer to at least the last three years of bank statements and up to seven if necessary.

We have seen in the press elsewhere, cases where executors have been personally penalised financially for missing such gifts – so far, we have had no such experience with our estates.

We did receive an enquiry into one estate, with HMRC asking why we thought the deceased hadn’t made lifetime gifts; the truth being that familial circumstances, ongoing divorce proceedings involving his offspring, had influenced this decision.

When looking at lifetime gifts, it is important to recognise that there are two main types of gift that you can give; Potentially Exempt Transfers (PETs) and gifts with reservation of benefit.

The majority of gifts given come under the PET umbrella – meaning that if the deceased survives for seven years after gifting the asset or sum of money, it is exempt from any IHT charge.

In respect of gifts with reservation of benefit, the seven year rule does not apply. Gifts with reservation of benefit are any asset or gift that has continued to be enjoyed by the deceased after the point at which they had given it away.

The gift would effectively be ignored and, therefore, need to be valued as at the date of death.

Where lifetime gifts are concerned, there is also an annual allowance to be aware of and a small gift exemption.

The annual allowance means you exclude the first £3,000 of gifts given away each year and you can also use any previously unutilised allowance from the previous tax year.

The small gift exemption means that gifts of up to £250 each can be made to any number of individuals in the same tax year, provided no other gifts were given to them.

For example, we often see many grandparents give £250 to children or grandchildren at Christmas-time.

Where there is IHT to pay, it is charged at 40 per cent on gifts given in the three years prior to death, whilst those given between three and seven years prior are charged on a sliding scale, as follows:

Years between gift and deathTax paid
less than 3 years40%
3 to 4 years32%
4 to 5 years24%
5 to 6 years16%
6 to 7 years8%
7 or more years0%

Clearly, the process of establishing lifetime gifts is something worth getting right when you consider the significant sums of money that are often at stake and the consequences of overlooking any.

To discuss our Probate & Estates services in more detail, contact Huntingdon-based Barry Jefferd or Jenna Boddington on 01480 426500, or Letchworth-based Martin Williams on 01462 708810.

You can also email us at probate@georgehay.co.uk.


Authored by Director of GH Probate Ltd., Barry Jefferd.

Our Probate service is provided through GH Probate Limited. GH Probate is the trading style of GH Probate Limited. Registered in England and Wales number 9630102. Registered Office: St George’s House, George Street, Huntingdon, Cambridgeshire PE29 3GH.

Authorised to carry out the reserved legal activity of non-contentious probate in England and Wales by the Institute of Chartered Accountants in England & Wales

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