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.
We have been working, this month, on submitting two Inheritance Tax (IHT) forms where the Executors are claiming relief from IHT on lifetime gifts, claiming them as expenditure out of income which can be a valuable relief.
When somebody dies, their Estate is subject to IHT, based on the value of their Estate at death plus lifetime gifts within seven years of death. The first £3,000 gifted each year is ignored.
However, another valuable relief is the one for gifts out of income. Gifts out of income do not count as lifetime gifts if:-
- The gift is regular or capable of being regular.
- The payments can be made out of surplus income i.e., without disturbing capital.
The most common examples would be regular gifts such as on birthdays and Christmas, or life assurance premiums where the policy benefits others who are not the deceased or their Estate.
The amount of the gift can vary if income varies. It can be, for example, all surplus income. It can also be linked to an income source, such as 50% of dividend income. Please note that any gift out of income is out of ‘net income’ i.e., after the donor has paid any income tax that is due.
The form that needs to be completed, to claim the relief, is IHT403. If you look at this form, it is very detailed and requires you to produce a cash flow statement for the deceased, encompassing the past 7 years. This is to prove that the donor has made the gift out of income and has not used capital.
Completing the form as drafted is almost impossible for any Executor. We suspect that somebody would struggle completing a form on their own assets, let alone for somebody else’s who is deceased, and so unable to assist.
In practice, we have found that HMRC will accept simplified alternative claims as long as you can clearly demonstrate that capital is not being distributed.
In an Estate we have recently dealt with, a claim for lifetime gifts over the years of £90,000 was made. This resulted in an IHT saving of £36,000 so it was well worth the effort of the Executors liaising with us. In this case, we put “see attached” on the IHT403 and presented the information in a format that clearly identified the facts and was able to justify the claim.
With IHT being chargeable at 40%, there are big savings to be made.
To discuss your requirements with one of our discreet, expert probate practitioners, contact Huntingdon-based Barry Jefferd on 01480 426500, or you can email us at firstname.lastname@example.org where your enquiry will be dealt with by one of the team.
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