IHT 400 (the Long Form) asks “Did the deceased make any Lifetime Gifts?”
You also sign a Declaration to say “I/We understand that I/we may be liable to prosecution if I/we deliberately conceal any information that affects the liability to Inheritance Tax arising on the deceased’s death, or if I/we deliberately include information in this account which I/we know to be false.”
The recent case of Hutchings v HMRC, 2015 where a Lifetime transfer was not declared but an anoomous tip off to HMRC . . .
This lifetime transfer from the deceased to Clayton Hutchings resulted in an additional £47,000 of inheritance tax being due, for which Clayton Hutchings, as the recipient of the gift, was personally liable.
HMRC also imposed a penalty of 65% of the potential loss of inheritance tax payable (£113,794) caused by the failure of Clayton Hutchings to declare the gift, although this penalty was subsequently reduced to £87,533. HMRC have the authority to impose such a penalty under Part 1 paragraph 1(1) of Schedule 24 of the Finance Act 2007 following a failure of a recipient of a lifetime gift failing to disclose such a gift to HMRC at the relevant time.
There are several small gifts possible under s19-s22 of IHTA 1984
Annual gifts of £3,000
Any number of small gifts up to £250 as long as they are to different beneficiaries
Gifts on marriage £5,000, fm parents; £2,500 fm grandparents; £1,000 fm others.
The calculation at Probate
There is nothing to stop you making a gift of any amount with the understanding that the value of that gift does not clear your estate for seven years.
If you die within that seven years then the value of that gift will erode your Nil Rate Band Allowance first before any tapering of the tax due. So for example if you have gifted £200,000 and die after 6 years then (IHT allowance 325,000-£200,000= £125,000 No taper
Or you have gifted £425,000 and die after 6 years then (IHT allowance 325,000-£425,000)= £100,000 * 40%= £40,000
This £40,000 has 80% relief because you have died after 6 years. Tax to pay is only £8,000
Section 21 Relief
Under s21, a gift is exempt if it is part of the transferor’s normal expenditure paid out of his income, leaving him with sufficient income to maintain his customary standard of living. Thus, a regular payment of £1,000 a year, out of income, to each of one’s grandchildren, would be exempt (provided that sufficient income was left to maintain one’s standard of living) Completing the table that is part of IHT403 when the regular gifts are started will be an enormous help to your executor.