Tax, HMRC, gift and self-assesment

[Bonebreaker777]

Good afternoon,

Quick question as HMRC is not open today.

If the annual limit is to gift £3.000 without tax and the allowance can be carried forward and a said individual never gifted anything in this manner before, is it okay to gift £15.000 as allowance for this year and the previous 4 years? Or £18.000 and make it 1+5 years?

I tried to google the matter but no such luck :|

[kalniel]

1) Get advice.

2) As far as I can tell, it can only be carried forward one year.

You can carry any unused annual exemption forward to the next year - but only for one year.

3) If you don't die in the next 7 years you're fine. Even if you do, you've got up to £325,000 (to cover everything you own).

Some explanation of the last point - gifts after the £3000 annual exemption basically still count as you owning them, so if you pop it they count as part of your estate for the purposes of inheritance tax (which is due on anything over £325,000). Only after 7 years has passed is something you've given away counted as not yours any more. Which means you can give away any amount as long as you stay alive for 7 years.

[Saracen999]

As I remember it, kalniel's explanation is pretty much on the nail. Then again, my accountancy training was a LONG time ago. Like 40 years ago. It just might have changed.

And to add to the above, IIRC, the "charge" used to be on a sliding scale over those 7 years. The closer to 7 years you got, the smaller the charge levied for a gift. That is, for the first 3 years, the charge is 40%, sliding down with each year until it's merely 8% in the last chargeable year. Then 0% if you get past year 7.

It also matters what the chronology is, as th oldest are applied to your overall IHT threshold first. There are also some other "exemptions" on top of the standard £3000 that may (or may not) apply.

My advice is that anyone that owns a house needs to think about IHT, because with today's property values, it's easy for many to go over the standard £325000 limit.

My parents both went down with terminal cancers at much the same time, though this was 30-odd years ago, and the rules have changed since. But their circumstances were that a simple change to home ownership made getting on for £100k difference to the inheritance tax bill. If (as was initially the case) they jointly owned the house, it all went to the other on the death of the first. Then, on the death of the second, an IHR bill of getting on £100k would be due.

But if they each owned 50% of the same house, they BOTH got the full £325000 allowance, and half the value of the house charged against each. Tax bill = £0.

Needless to say, my parents were rather keen that their estates (tax parlance, not some country pile) went to their kids, not the taxman.

That particular quirk no longer exists. Gordon Brown removed it shortly after the '97 election. But that isn't the only IHT bear trap.

Most normal people won't get hit by IHT unless they inherit a house, but if you do, even a modest home can result in a whopping great tax bill, especially in places like London.

If you own a house, and want your estate to go via you will (probably to kids) make sure you do simple, basic estate planning.

[kalniel]

And to add to the above, IIRC, the "charge" used to be on a sliding scale over those 7 years. The closer to 7 years you got, the smaller the charge levied for a gift. That is, for the first 3 years, the charge is 40%, sliding down with each year until it's merely 8% in the last chargeable year. Then 0% if you get past year 7.

Yes that's still the case.

Years between gift and death Tax paid
less than 3 40%
3 to 4 32%
4 to 5 24%
5 to 6 16%
6 to 7 8%
7 or more 0%

[Quartz]

If the annual limit is to gift £3.000 without tax and the allowance can be carried forward and a said individual never gifted anything in this manner before, is it okay to gift £15.000 as allowance for this year and the previous 4 years?

You need proper legal advice here but for gift purposes as @kalniel states only one year - £3000 - can be carried forward. Any more and it possibly becomes subject to Inheritance Tax.

[Bonebreaker777]

Thank you, I appreciate the advice