Question about Inheritance Tax. Giving the money back.

[moebiusuk]

Hi

If grandparents gifted money to grandchildren, the grandchildren are liable to pay Inheritance Tax, of course.

If the grandchildren, due to unforeseen circumstances, need to give the money back, are they still liable to pay the Inheritance Tax or is considered to part of the grandparents estate again?

[Eric Mc]

Why do you think they are liable to Inheritance Tax.

Have the grandparents died?

Inheritance Tax is only charged on a death.

The clue is in the name of the tax.

[moebiusuk]

Sorry I should've been more clear. Consider this scenario (numbers are arbitrary):

- Grandparents give money grandchildren
- Grandchildren decide, 2 years later, they don't want the money for whatever reason (grandparents still alive at this stage)
- Money is returned to grandparents (grandparents still alive at this stage)

Is the money considered as part of the grandparents estate again? Or, as it was originally gifted, are grandchildren still expected to pay Inheritance Tax (if there are any when grandparents die)?

[eps]

A quick Google...

"
Gifts you don’t pay Inheritance Tax on
The estate doesn’t pay Inheritance Tax on up to £3,000 worth of gifts given away by the deceased in each tax year (6 April to 5 April). This is called the ‘annual exemption’.

Leftover annual exemption can be carried over from each tax year to the next, but the maximum exemption is £6,000.

Certain gifts don’t count towards the annual exemption and no Inheritance Tax is due on them, eg wedding gifts and individual gifts worth up to £250.
"

From here : https://www.gov.uk/inheritance-tax/gifts

[Eric Mc]

moebiusuk said:

Sorry I should've been more clear. Consider this scenario (numbers are arbitrary):

- Grandparents give money grandchildren
- Grandchildren decide, 2 years later, they don't want the money for whatever reason (grandparents still alive at this stage)
- Money is returned to grandparents (grandparents still alive at this stage)

Is the money considered as part of the grandparents estate again? Or, as it was originally gifted, are grandchildren still expected to pay Inheritance Tax (if there are any when grandparents die)?

Gifts to and from people "inter vivo" i.e. whilst still alive - are pure gifts and are not subject to any forms of tax.

A makes a gift to B

The gift leaves A's estate and goes to B's estate.

B gives a gift to A - which happens to be of the same value as the original gift from A to B.

The same principle applies, the gift from B to A leaves B's estate and becomes part of A's estate.

No IHT is chargeable on any of those transactions.

I am assuming that neither party dies in the intervening 7 years.

[moebiusuk]

Eric Mc said:

Gifts to and from people "inter vivo" i.e. whilst still alive - are pure gifts and are not subject to any forms of tax.

A makes a gift to B

The gift leaves A's estate and goes to B's estate.

B gives a gift to A - which happens to be of the same value as the original gift from A to B.

The same principle applies, the gift from B to A leaves B's estate and becomes part of A's estate.

No IHT is chargeable on any of those transactions.

I am assuming that neither party dies in the intervening 7 years.

If, in this example, A dies within 7 years but after B gives A of same value as the original gift, do you know what the situation would be?

[Eric Mc]

IHT would be chargeable on the gift from A to B (assuming the threshold had been exceeded for IHT).

The gift from B to A is a completely separate transaction with no impact on the original; gift from A to B.

[MKnight702]

My understanding is that the person receiving the gift only becomes liable to fork over cash to HMRC if the deceased's estate does not have enough cash to pay over the tax on the grossed up amount (ie the estate value after adding back the taxable element of the gift). It is the responsibility of the estate to pay the tax and you only become liable if you emptied all the coffers so the Tax Man can't get his due.

[moebiusuk]

OK cool, really appreciate the advice, thanks very much.

[Tiggsy]

when someone dies gifts in the last 7 years use up avalible nil rate band (325k) - so unless the person gifts more than that....no one who got a gift will pay anything (the estate thats left will pay more as there is a reduced nil band....but thats the problem of the estate)

[CDP]

Was it a gift or a loan?

[Eric Mc]

CDP said:

Was it a gift or a loan?

The word "loan" was never mentioned so all the answers were based on the premise that it was a gift.

[moebiusuk]

Yep this is a gift for a house purchase that may or may not go through. We don't the money to be transferred to our account, not need it, give it back and still be liable IHT if grandparent dies within 7 years.

[Eric Mc]

Is the gift given to you on the understanding that it MUSTY be used in the purchase of a house?

Can the money be kept to use any way you like?

Have you received the money yet?

If not, just tell them you don't want it. Problem solved.

[moebiusuk]

Yep the money will specifically be for a house purchase. We don't have the money yet. I'm just pre-empting the consequences regarding IHT before we take the plunge.

[Tiggsy]

unless gifts are over 325k you will never pay the tax anyway

[Eric Mc]

moebiusuk said:

Yep the money will specifically be for a house purchase. We don't have the money yet. I'm just pre-empting the consequences regarding IHT before we take the plunge.

What happens if you take the money and you don't spend it on a house?

[Ginge R]

moebiusuk said:

Hi

If grandparents gifted money to grandchildren, the grandchildren are liable to pay Inheritance Tax, of course.

If the grandchildren, due to unforeseen circumstances, need to give the money back, are they still liable to pay the Inheritance Tax or is considered to part of the grandparents estate again?

It depends on the amount gifted, the existing or projected exposure and any countermeasures that you take.