Keep a record of financial gifts to your loved ones to avoid inheritance tax headaches
Generous older people could be piling up trouble for loved ones by not making a record of financial gifts.
More than half of over-55s who have handed over money or other assets in the past seven years are not keeping track, new research reveals.
Without this information, families will struggle after someone's death to fill in forms to prove whether they are exempt from inheritance tax, and if it is payable how much is owed.
Even when an estate is not large enough to pay death duties, the deceased person's finances still need to be gone through and often information must be submitted to the taxman anyway.
Families have to settle whether they owe inheritance tax one way or another with HMRC, if they need to get probate to gain control of the deceased person's funds - it isn't granted without the taxman's official sign-off.
But just 31 per cent of over 55s who have given a financial gift in recent years know the exact amount they have given, while 45 per cent could give a rough estimate and 24 per cent have no idea, according to a survey by Canada Life.
Financial gifts: Many older people hand over money and other assets to family members to help them out, and to reduce a potential inheritance tax bill
'Upon death, HMRC requires executors to complete form IHT400 to report the full value of an estate, with form IHT403 used alongside it to disclose lifetime gifts, such as cash, property or shares, made in the seven years before death and in some cases earlier,' says the firm.
'Without clear, accurate records of these gifts, executors may struggle to complete the forms correctly, which can cause delays in probate or increase the risk of queries from HMRC, adding unnecessary stress at an already difficult time.'
Canada Life says that many people aren't aware of what HMRC counts as a financial gift, with 59 per cent not knowing that it includes furniture, jewellery and antiques.
Some 55 per cent don't know that gifts of stocks and shares come under the rules, and 32 per cent are in the dark that they cover giving away a house, land or buildings.
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Among those who do keep a record, 13 per cent list gifts in a formal spreadsheet, accounting software or secure notes app, while 15 per cent did it less formally by writing it down on paper or making a personal note on their phone.
The average amount given over the past seven year by those who knew the exact amount or could give a rough estimate was £42,056 – way over the annual tax free gift allowance of £3,000.
Gifts are one of the simplest ways to reduce an inheritance tax bill, because they become exempt from tax if you live for at least seven years.
If you die before the seven years are up, inheritance tax is levied on a sliding scale.
Inheritance tax kicks in at 40 per cent on estates above a certain size - see below or read our guide to paying inheritance tax.
Canada Life's survey was based on a nationally representative group of 786 people aged 55 and over, of whom 168 had given a financial gift in the past seven years.
How to keep a record of financial gifts
Canada Life recommends older people making financial gifts check HMRC's IHT 400 and IHT 403 forms to understand what information people sorting out their estate will have to provide to HMRC.
'Key information needed is the amount given, who you made the gift to, the date you gave it, and your relationship to that person. It should be filed in a backed-up place that your executor knows the location of,' says tax, trusts and estate planning expert Liz Hardie.
'Gifting to loved ones can be hugely positive – not only can it help reduce an inheritance tax liability, but it can also help loved ones onto the property ladder, support grandchildren through education, or simply make life a bit easier for friends and family.
'However, if you do not keep a clear record of what you have given and when, you risk creating problems for your family later on.
'Poor records can mean your executors struggle to complete the paperwork once you pass away, and allowances and exemptions may be missed because they cannot be evidenced to HMRC. This can delay the grant of probate and therefore delay payments to beneficiaries.'
> Read more about how to keep a good record in our guide to Inheritance tax gift rules
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