How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4075
Experience:  FCCA FCMA CGMA ACIS
75394688
Type Your Tax Question Here...
bigduckontax is online now

Good evening, A family friend and I were chatting today and

Customer Question

Good evening, A family friend and I were chatting today and she is very concerned,
She and her 3 siblings were all given a cash gift of around 50K each 2.5 years ago from there parents joint bank account. Her mother is now seriously ill but father is fit and well. The money originated from a business her mother sold, the family accountant made sure all the tax was paid before the money was transferred into there joint account. As the money came from there joint account if my friends mother dies would the 7 year IH tax law apply?? As the money originated from her business sale but the cash gifts were paid from her parents joint account?
Any help would greatly appreciated as my friend was very worried today especially as her mother is very ill currently.
Regards Ben
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Ben, I'm Keith and happy to help you with your question. The news I impart is not quite what you hoped to hear, unfortunately.
The leading case on this matter appears to be John Matthews (Executive and Trustee of the estate of Mrs Mary Jean Matthews Deceased) ([2012] UKFTT 658 (TC) and the news is not good. The ruling was that the 7 year rule would apply to the whole sum gifted. The first 20% of taper does not kick in until three years after the date of gift. The effect of this is that the aggregate 200K of gifts would be added back to the donor's estate in the event of an unfortunate demise in the near future. This Potentially Exempt Transfer (PET) is the first to suffer Inheritance Tax (IT) and if the estate cannot meet this then the liability cascades down to the beneficiaries for immediate payment. IT does not kick in until GBP 325K plus inter-spousal bequests and certain others, mainly those of a charitable nature. If the estate is not going to exceed 325K plus the matters already mentioned then you need not concern yourself with the PETs.
I do hope I have been able to shed some light on the position and regret that I may in part, have had to rain on your parade..
Customer: replied 2 years ago.

Good evening Keith,
Sorry to be a pain but can you speak in Leyman'ss terms as its a bit of a struggle to read.

So just to check when I speak to my friend again,

- If her mother passes away but her father is still alive and the money that were gifted to them came from her mother and fathers joint account will all the siblings have to pay IT? Or as her father is still alive and all her mothers half of there estate passes to him will IT not take effect until her father passes away?
The cash gifts paid to all siblings 2.5 years ago totaled 240K,, 80K each.

Expert:  bigduckontax replied 2 years ago.
Not unless the mother's estate exceeds 325K plus etc and is insufficient to meet the IT on the PETs than there is no liability. If all her estate is willed to her husband then IT will not arise, an inter-spousal transfer. Subsequently on the Father's decease the same 325K rule applies save that he will inherit the unused portion of his widow's 325K making a possible 650K before IT kicks in. Survivors and the beneficiaries are not liable for IT, that is a charge on the deceased's assets. The only time they can be spanned is in relation to PETs if the deceased's estate is inadequate to meet any IT imposed. .
Customer: replied 2 years ago.

Thank you for the quick reply Keith,

Just to confirm in Laymans terms though can you explain what PET means!?

Expert:  bigduckontax replied 2 years ago.
Certainly; a PET, a Potentially Exempt Transfer, is created when a gift of this nature is made and starts the seven year rule system. It does not apply to inter-spousal gifts which are outside the scope of UK tax. PETs run off at a taper over the period after the gift is made. You will find I have covered how the PET works once it has been created.
If you have no more follow up questions please be so kind as to rate me before you leave the Just Answer site.
Customer: replied 2 years ago.

Hi Keith,

Thank you for the quick reply and definitely will give you a positive rating but I am still not completely clear,

Where you say,

Not unless the mother's estate exceeds 325K

For instance her mothers estate at this time is shared with her husband 450K house owned outright, 150K in the bank majority of which came from her business sale 2.5 years ago, her pension which is an amount of don't know.

So say 600K in current assets, they gifted 240K from joint account 2.5 years ago so 840K total.

So just to check again now with quite accurate figures, when her mother passes away will the 3 siblings have to pay IT or as her father is still alive they will not have to pay anything at this difficult time?

Thank you.

Expert:  bigduckontax replied 2 years ago.
Assuming that your Mother's estate passes to her spouse no IT will arise at that stage. When your Father passes on, and he may have frittered his estate away in the meantime [joke], the his estate will have to meet the IT on say 840K. That would b,e in general terms, an IT of 840K - 650K = 190K @ 40% = 76K of IT due FROM HIS ESTATE. The beneficiaries can only be called upon to meet the shortfall, and that on the PETs only, if the deceased's estate cannot meet the IT.
Customer: replied 2 years ago.

Hi Keith,

That's is really positive news as I know this has been really troubling my friend.

And finally last thing to check, when one day when her father passes away the IT threshold will be 650K so that 325K for her previously deceased mother and 325K for the father as you have said above?

Last follow up I promise.

Expert:  bigduckontax replied 2 years ago.
Yes, you have it to a T; the Father will inherit any unused portion of his spouse's 325K tax free allowance. Whether that be the full 325K or only a proportion we cannot tell without full knowledge of the will, beneficiaries therein and assets taken into account at death. 'If she leaves the whole shooting match to her spouse then indeed the full 325K would be available against a future decease.
Please be so kind as to rate me before you leave the Just Answer site.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.