Inheritance Tax question

[Volvolover]

Hi

I’m obviously going to take some professional advice in due course but that’s not just yet and I wondered if I could establish a principle to help my thought process


Over the last 5 years or so a relative has paid some medical bills on behalf of my wife by means of transfers to my wife which have then been used to settle medical invoices, the relative has sadly passed away and it’s crossed my mind that we may be due to pay some IHT on this?

I’m 50/50 of the opinion that the payments were purely disbursement and not taxable ( around £65k ) but I’m not sure.

Anyone offer a professional opinion?

[Simpo Two]

Any IHT would be for the deceased's Estate to pay, not you. But I suspect the money would be a PET - potentially exempt transfer - on which tax is due depending how long they lived after the gift/s.

[Eric Mc]

Also, if the medical bills were paid by the deceased out of their annual income (whatever that was - salary, pensions, self employed income, dividend or bank interest, rental income etc)) it would never have formed part of their estate and would be ignored for IHT purposes.

[ellroy]

Could be a PET, could be deemed a gift from income, and exempt, could be gifts with annual allowance, depending on individual amounts/timescale of gifting, and exempt. Not enough information to say at this point.

[Simpo Two]

ellroy said:

Could be a PET, could be deemed a gift from income, and exempt, could be gifts with annual allowance, depending on individual amounts/timescale of gifting, and exempt. Not enough information to say at this point.

The gift allowance (ie max amount before PET) was £3,000pa, but that was a while back so may be more now. Google will tell you.

[Dixy]

Is your wife either a beneficiary or executor of the estate.

[Volvolover]

Dixy said:

Is your wife either a beneficiary or executor of the estate.

Beneficiary

[mike_e]

I've been through this recently. A lot will depend upon the value of the estate and how you treat the transfers. If the entire estate and the value of the transfers is less than the current IHT threshold then there's no IHT to pay. If the relatives spouse died before them then you may be able to use their spouses allowance, effectively doubling the threshold. There is also a property exemption which can increase the threshold too. If the payments are treated as a PET and the donor dies within 7 years of the date(s) of the gift, as in your case, then there is a tax liability on a decreasing scale. Provided the amounts liable to tax are included in the estate IHT calculations then there should not be any tax liability for your wife. As always seek professional advice.

[Simpo Two]

mike_e said:

A lot will depend upon the value of the estate and how you treat the transfers. If the entire estate and the value of the transfers is less than the current IHT threshold then there's no IHT to pay. If the relatives spouse died before them then you may be able to use their spouses allowance, effectively doubling the threshold...

True, but his wife is a beneficiary, not an executor. The area you're talking about is for the deceased's Executor to sort out, not the OP's wife.

[anonymous-user]

Note: Tax on a failed PET (i.e. a lifetime gift made within 7 years of death) is payable primarily by the recipient of the gift. The estate only becomes liable if the recipient doesn't pay.

"Normal expenditure out of income" is completely outside the IHT net no matter who the money is spent on. If the £65k was spent over a period of years and the donor had an income significantly bigger than their other routine outgoings there might be scope to rely on this.

It's unfortunate there was clearly a "gift" in this case which was then spent by the recipient on medical expenses. It's a bit easier to argue the case if the expense was met directly.

As others have mentioned above, chargeable gifts are looked at in the order they were made so this £65k may simply use up part of the tax free band.

[Eric Mc]

It can be a non-taxable gift permanently as long as it was made out of annual income.

[ellroy]

Simpo Two said:

The gift allowance (ie max amount before PET) was £3,000pa, but that was a while back so may be more now. Google will tell you.

It’s still £3k, but there’s no indication of what was gifted and when, nor income of the gifted over the 5 year period. Hence, there’s not enough information to say what the possible implications are.

[Eric Mc]

It doesn't matter. You don't need to identify the nature of the gift to ascertain what gifts make up the £3,000 annual allowance.

Have you taken on board my comment about "Gifts out of Annual Income"?

[Dixy]

Volvolover said:

Dixy said:

Is your wife either a beneficiary or executor of the estate.

Beneficiary

Tell the executor what she has had and allow them to sort it out.

[Atomista]

rockin said:

Note: Tax on a failed PET (i.e. a lifetime gift made within 7 years of death) is payable primarily by the recipient of the gift. The estate only becomes liable if the recipient doesn't pay.

Not quite true as failed PETs get first dibs on the Nil Rate Band. Any IHT is paid by the estate and any failed PETs reduce the NRB.

[anonymous-user]

rockin said:

.....chargeable gifts are looked at in the order they were made so this £65k may simply use up part of the tax free band.

QED