Inheritance and Capital Gains Taxes

Discussion in 'UK Finance' started by Alasdair Baxter, May 20, 2005.

  1. About 20 years ago, a former colleague of mine (A) took lodgings with
    an elderly spinster (B), a lady of considerable wealth. As time
    passed, a symbiotic relationship developed between the two women to
    become more like mother and daughter than landlady and lodger. A
    became the daughter B never had. B's only relatives live a long way
    from her and only visit once a year if that. A is in her mid fifties
    and B in her late eighties and now totally blind.

    Over the past 7 or 8 years, B gave A a series of gifts of cash
    totalling some £60,000 or £70,000 culminating in a gift last year of
    £50,000 to enable A to buy a flat when B had to go into residential
    care. B also gave gifts to other individuals and charities.

    The executors of B's will are a firm of solicitors.

    My question is: Should B give all her money away so that there is
    nothing left in her estate when she eventually dies, can the Inland
    Revenue demand money in respect of Inheitance Tax and/or Capital Gains
    Tax from the people to whom B gave gifts during her lifetime? Can the
    executors of B's will demand monies from the same people if there is
    no money in her estate to pay their fees?

    My former colleague is concerned lest at some time in the future after
    B has died, she will receive demands for money which B's estate should
    have paid had there been any money left.

    This is not an academic question but a real life situation.

    --

    Alasdair Baxter, Nottingham, UK.Tel +44 115 9705100; Fax +44 115 9423263

    "It's not what you say that matters but how you say it.
    It's not what you do that matters but how you do it"
     
    Alasdair Baxter, May 20, 2005
    #1
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  2. Gifts within the seven years previous to death (if above 6000 pounds IIRC)
    can be taxed on a pro rata basis (if the old lady qualifies to pay IHT). ie
    if the old lady dies tomorrow the younger lady will get taxed 6/7 of the iht
    (40% iirc) of the 50000 she had last year (about 15000 pounds) , plus any
    relevant lumps from previous gifts in the last seven years.

    mrcheerful
     
    mrcheerful , May 21, 2005
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  3. Alasdair Baxter

    john boyle Guest

    If the total of ALL gifts made by B in the seven years prior to her
    death (assuming none of the gifts where made to a discretionary trust)
    at the time of B's death does not exceed the Threshold for Inheritance
    Tax, which is currently £275k, then A is in the clear. If they do exceed
    the Threshold then the excess is chargeable on A @ 40%, but this is
    subject to taper relief for gifts made in excess of 3 years prior to
    death. If A cant pay then the Execs will have to.

    See this link

    http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm30000.htm

    and then look for the heading "Liability on potentially exempt transfers
    (PETs)" and follow the 4 links below that heading AND the links below
    the heading "Definition and extent of liability (PETs)"

    The words "Curlies got short by you and the" come to mind.
     
    john boyle, May 21, 2005
    #3
  4. Alasdair Baxter

    Tim Guest

    Do you mean that the Execs would have to pay *personally*??
    That sounds a little worrying - can you elaborate a little, please?

    For instance - suppose someone (let's call them person 'P') has a grudge
    against someone else (let's call them person 'X'). Person 'P' writes a will
    naming person 'X' as Executor and then gives away all their estate (to
    someone else, person 'A', who blows it all immediately - and so would then
    not be able to afford to pay the IHT if person 'P' dies within 7 years).
    Now, what happens if person 'P' dies within 7 years of the gift? Person 'X'
    (as Executor) has to pay IHT on the estate?? Ouch!
     
    Tim, May 21, 2005
    #4
  5. Alasdair Baxter

    Tim Guest

    As I said, Ouch!!
    So - is there any facility for a named Executor to say "No, I won't act as
    Executor" after they have been named in someone else's will?
    What if the Executor doesn't even know that they've been named in the will,
    until someone knocks on their door after the person has died??
     
    Tim, May 21, 2005
    #5
  6. Alasdair Baxter

    john boyle Guest

    AIUI the reluctant executor would have to go to court and try and get
    somebody else, if none were forthcoming then I suppose the curt would
    appoint someone
    Actually, this has happened to me! Luckily the estate was below the
    Threshold. (Phew)

    I dont know what would happen if the IHT couldnt be paid by the lifetime
    transferee n these circs. The link implies that the CTO would be
    compassionate.
     
    john boyle, May 22, 2005
    #6
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