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Where Taxpayers and Advisers Meet

Inheritance Tax - the 7 year rule

Jaytee73
Posts:5
Joined:Wed Oct 17, 2018 9:58 pm
Inheritance Tax - the 7 year rule

Postby Jaytee73 » Mon Apr 27, 2020 10:46 pm

Hello, I would be very grateful for some advice please on the following:

In 2006, I was gifted a sum of money by my Mother for the sum of £150,000.00 and I deposited the monies into my bank account and she wrote a letter, which she kept hold of, stating that she had given me the monies and that this was not a loan and that it was a gift that she did not wish to have paid back to her.  The full amount of money would therefore become exempt from inheritance tax from sometime in 2013 due to the seven year inheritance tax rule. 

In 2010 or 2011, for different reasons, I voluntarily gave the monies (a higher amount than the original £150,000.00 due to interest having been accrued over the last 4 or 5 years) back to my Mother.  She deposited the cheques into her bank account but literally months (maybe even weeks) later, she again gave me the monies and I deposited them into my own account again. 

In addition to this, over the years, she gifted me the £3000.00 a year that is a tax free gift with no 7 year tax exemption rule and she gifted me the monies during several years. 

My concern is that in 2010 or 2011 when I returned the lump sum to her and then she more or less immediately returned it to me, I don't know whether because I only had it for 4 or 5 years, is that money hers again automatically without the 7 year rule for her to complete? I am fairly sure that when she gave the monies back to me, the 7 year rule for me began again and that I would only have completed the 7 years in either 2017 or 2018. 

The other issue is that she didn't write another letter when she gave it back to me and we are unsure of the exact year it was given back to me.  In addition, she didn't write letters to me when she gave me the £3K a year as she feels that it doesn't matter due to it being exempt of tax anyway. 

I was previously advised by someone that in their opinion, it now doesn't matter about a letter for the lump sum as I have had the money back for at least 9 years and so if my Mother passed away, the authorities would only look back at her bank statements for the past 7 years.  I am very methodical these days with keeping records but at the time, I would mix all the money up into other accounts without making records/keeping documents etc... and so the £3K a year were added to the lump sum, invested all over the place and I just wondered if you could please advise me over 1) whether the £3K needs a letter each time 2) If it matters that there is no record of when the monies were returned to me considering it was 2010/2011 and 3)If when I gave the money back to her after 4 or 5 years, whether the 7 year rule applies to her as well.  I would be very grateful for any advice that you may be able to give to me.  Many Thanks

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Inheritance Tax - the 7 year rule

Postby pawncob » Tue Apr 28, 2020 12:34 pm

No the £3k annual exemption does not require a letter, it is exempt. Letters of gift are always advisable though, even for exempt items as they establish a pattern.
How can you be unsure of the date when the £150k was given to you? It must involve a physical deed (cheque, bank transfer etc).
A letter specifying the gift would be useful, though not essential, as the previous letter establishes the intent, but a date IS essential.
Yes, the gift to her (if it actually was a gift, and not a loan :roll: ) starts the 7 year clock for that gift..
With a pinch of salt take what I say, but don't exceed your RDA

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Inheritance Tax - the 7 year rule

Postby AGoodman » Tue Apr 28, 2020 1:16 pm

If your mother died and her executors (e.g. you) were content that the second payment to you was more than seven years ago then it needn't be mentioned anywhere.

Jaytee73
Posts:5
Joined:Wed Oct 17, 2018 9:58 pm

Re: Inheritance Tax - the 7 year rule

Postby Jaytee73 » Tue Apr 28, 2020 8:19 pm

Hi,

Thanks for all of your advice everyone and just to clarify on the points:

I withdrew the monies in either 2010 or 2011 and was then given the funds back the same year. I will investigate what the actual time was.

What I am struggling with is this:

My Mum gave me the monies in 2006 and therefore they would be exempt from inheritance tax in 2013.

With me giving the monies back to her and then getting them back almost immediately, is there any rule involved for her or is it the fact that you could keep passing it back and to and whoever has the money, the 7 years then starts again from the date of receipt. I have always thought that because I gave her the money back in, say 2010, that once 2017 arrived, it was exempt from inheritance tax, but the fact that she received the funds back - albeit briefly - does this mean extra time is added on? Many thanks

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Inheritance Tax - the 7 year rule

Postby pawncob » Wed Apr 29, 2020 11:54 am

The seven year rule starts every time a gift is made, even if there is an existing gift subject to the time limit. A gift from her in 2010 is subject to the 7 year rule until 2017. A gift from you to her in 2015 starts a period from that date even though the funds are still subject to a previous gift limitation.
With a pinch of salt take what I say, but don't exceed your RDA

Jaytee73
Posts:5
Joined:Wed Oct 17, 2018 9:58 pm

Re: Inheritance Tax - the 7 year rule

Postby Jaytee73 » Wed Apr 29, 2020 4:58 pm

Many thanks for all the advice.


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