Gifts between people who subsequently marry

[HerbertViola]

When completing an estate valuation for IHT purposes in the case where a married person dies within seven years of their marraige, is it necesaary to give any consideration to the possibility of gifts made to their future spouse prior to the marriage?

The surviving spouse is the only beneficiary, in case that is relevant.

Thanks in advance for any replies (especially those in the negative!).

[PinkDalek]

When completing an estate valuation for IHT purposes in the case where a married person dies within seven years of their marraige, is it necesaary to give any consideration to the possibility of gifts made to their future spouse prior to the marriage? ...

That's a good question in that it is one I've been meaning to try and research every so often. Not that I have to date, as my amateur view is that they would represent a failed PET, despite the later marriage.

Unless the gifts fall under the exemption here:

Lifetime transfers: gifts in consideration of marriage or civil partnership: relationship with spouse or civil partner exemption
https://www.gov.uk/hmrc-internal-manual ... /ihtm14220

Would be interesting to hear from those in the know (of which there are few on here unfortunately).

As an add on, I take it you are familiar with (in addition to the better known exemptions and reliefs):

Normal expenditure out of income
https://www.gov.uk/hmrc-internal-manual ... /ihtm14231 and onwards

[HerbertViola]

Thank you for your thoughts, PinkDalek, even if they are inconclusive.

Whilst a straight 'no' to the original question would be reassuring, let's suppose for a moment that's not the right answer, in which case I can be more specific:

The only 'gift' I'm considering in this particular case is that which might be construed as arising from the payment of earnings into a joint account, and immediately condsidered by the cohabiting partners as a joint asset, but where the earnings of the deceased substantially outweighed those of the survivor (at least during the period in question).

It would be very arduous to value this, and it seems to me to be exactly the type of thing that is intended to be covered by the 'normal expenditure out of income' exemption, probably even in the case of a couple that didn't subsequently marry.

My inclination is stil to treat it an irrelevance.

[pochisoldi]

Thank you for your thoughts, PinkDalek, even if they are inconclusive.

Whilst a straight 'no' to the original question would be reassuring, let's suppose for a moment that's not the right answer, in which case I can be more specific:

The only 'gift' I'm considering in this particular case is that which might be construed as arising from the payment of earnings into a joint account, and immediately condsidered by the cohabiting partners as a joint asset, but where the earnings of the deceased substantially outweighed those of the survivor (at least during the period in question).

It would be very arduous to value this, and it seems to me to be exactly the type of thing that is intended to be covered by the 'normal expenditure out of income' exemption, probably even in the case of a couple that didn't subsequently marry.

My inclination is stil to treat it an irrelevance.

That smells exactly like money paid out of ordinary income to me.

[Lootman]

The only 'gift' I'm considering in this particular case is that which might be construed as arising from the payment of earnings into a joint account, and immediately considered by the cohabiting partners as a joint asset, but where the earnings of the deceased substantially outweighed those of the survivor (at least during the period in question).

It would be very arduous to value this, and it seems to me to be exactly the type of thing that is intended to be covered by the 'normal expenditure out of income' exemption, probably even in the case of a couple that didn't subsequently marry.

My inclination is still to treat it an irrelevance.

That would be my inclination as well.

The same kind of issue arises for me with many kinds of acts of generosity that I engage in, whether it is buying meals for people, treating them to holidays or other "everyday" types of gifts.

I do not document them for future IHT purposes for much the same reasons. It would be arduous, petty and such items are from income anyway, even if not specifically documented as such.

What I do document, and give to my accountant each year so it is recorded, are my cash gifts in excess of 250. The rest quite simply won't be known by anyone, and probably could never be known.

[PinkDalek]

Whilst a straight 'no' to the original question would be reassuring,...

Looking again at the first link https://www.gov.uk/hmrc-internal-manual ... /ihtm14220, I think the inference from there is that other Gifts (prior to marriage) do not qualify as exempt, as otherwise they wouldn't have needed to have mentioned gifts in consideration of marriage or civil partnership in context at all. Thus I'm probably veering towards a no.

The only 'gift' I'm considering in this particular case is that which might be construed as arising from the payment of earnings into a joint account, and immediately condsidered by the cohabiting partners as a joint asset, but where the earnings of the deceased substantially outweighed those of the survivor (at least during the period in question).

It would be very arduous to value this, and it seems to me to be exactly the type of thing that is intended to be covered by the 'normal expenditure out of income' exemption, probably even in the case of a couple that didn't subsequently marry. ...

On that front, you may wish to have a look at https://assets.publishing.service.gov.u ... _10_18.pdf, in particular the type of detail HMRC may require for Gifts made as part of normal expenditure out of income on page 8.

That would give you a feel generally to see if you have a Surplus (deficit) income for the relevant years.

Other than that, I make a monthly transfer (not to a joint account), to cover general household expenditure (mainly shopping), and lump that transfer in to my version of the IHT403 schedule I maintain for my Executors, under the General household expenditure row.

It might depend as to what purpose the joint account is to be used.

[HerbertViola]

Looking again at the first link https://www.gov.uk/hmrc-internal-manual ... /ihtm14220, I think the inference from there is that other Gifts (prior to marriage) do not qualify as exempt, as otherwise they wouldn't have needed to have mentioned gifts in consideration of marriage or civil partnership in context at all. Thus I'm probably veering towards a no.

I see what you mean. I had only ever thought of 'gifts in consideration of marriage' as relevant to gifts coming from outside the couple (e.g. parents). Whatever, the 'gifts' in this case (insofar as they can be said to exist at all), were not consciously made 'in consideration of marriage'.

The only 'gift' I'm considering in this particular case is that which might be construed as arising from the payment of earnings into a joint account, and immediately condsidered by the cohabiting partners as a joint asset, but where the earnings of the deceased substantially outweighed those of the survivor (at least during the period in question).

It would be very arduous to value this, and it seems to me to be exactly the type of thing that is intended to be covered by the 'normal expenditure out of income' exemption, probably even in the case of a couple that didn't subsequently marry. ...

On that front, you may wish to have a look at https://assets.publishing.service.gov.u ... _10_18.pdf, in particular the type of detail HMRC may require for Gifts made as part of normal expenditure out of income on page 8.

That would give you a feel generally to see if you have a Surplus (deficit) income for the relevant years.

That form is useful to see, as it (disappointingly) suggests that use of that exemption won't get around the problem of having to do a lot of number-crunching, despite presumably having absolutely no effect on IHT due.

Would I be taking any kind of risk by saying there were no gifts, and just noting under 'any other info' that I haven't attempted go through such a pointless and soul-destroying exercise (in suitable terms).

It might depend as to what purpose the joint account is to be used.

The usual expenses of living -- household bills, mortgage, petrol, capital items (cars), equal amounts to each partner for monthly 'pocket money', surplus occasionally transferred in joint savings accounts, or split equally for the purpose of ISA investments.

In short, the sort of arrangment I once imagined any married couple to operate, but which, apparently, many don't.

[Lootman]

Would I be taking any kind of risk by saying there were no gifts, and just noting under 'any other info' that I haven't attempted go through such a pointless and soul-destroying exercise (in suitable terms).

The issue really only arises after your death. So it wouldn't be you taking a risk at all, but rather the Executor of your Will. That is the person who is taking the risk of providing incorrect or incomplete information which might later lead to HMRC doing some kind of investigation. Ultimately that Executor can he held personally liable for any IHT shortfall.

Even so, assuming that you did not record any of these gifts then the average Executor is going to have little or no idea that they ever happened. There is a reasonable and practicable limit to how much work an Executor is supposed to perform. Would it be reasonable for an Executor to obtain 7 years worth of bank statements, cheque copies and credit card statements, and then comb through them for days looking for line items that might be a gift? I doubt it. Some might, especially if they are paid by the hour. Most won't.

Are the gift recipients going to co-operate? They are hardly motivated to do so and are under no legal obligation to do so.

What about cash? How is any Executor supposed to know whether you went around handing out envelopes full of fifty pound notes to your nearest and dearest?

So in practice what you document is what the Executor will report. And that very likely will become the truth by default.

[HerbertViola]

Would I be taking any kind of risk by saying there were no gifts, and just noting under 'any other info' that I haven't attempted go through such a pointless and soul-destroying exercise (in suitable terms).

The issue really only arises after your death. So it wouldn't be you taking a risk at all, but rather the Executor of your Will. That is the person who is taking the risk of providing incorrect or incomplete information which might later lead to HMRC doing some kind of investigation. Ultimately that Executor can he held personally liable for any IHT shortfall.

Ah, sorry, Lootman, this isn't a hypothetical situation. I am the surviving spouse and I am applying for probate, and consequently having to complete an estimate of the value of my spouse's estate for HMRC. I'm a conscientious person (I think) but I don't want to spend the next few weeks' spare time going through an exercise if it is really not expected of me and not normal practice in this situation.

The rest of what you said is useful and appreciated. Thanks.

[PinkDalek]

The usual expenses of living ... or split equally for the purpose of ISA investments.

There, perhaps, is the rub.

I wasn't suggesting you fill in the form as if your or your partner's Executors were to submit it. Merely suggesting you could use the template to get a broad feeling if you have a Surplus or (deficit) of income in the first place.

When you say despite presumably having absolutely no effect on IHT due do you wish to expand on what you mean by that comment?

We don't, of course, know the size of your respective Estates nor the amount of the monthly salary (which could be anywhere between say £1,000 and £20,000). Not that I'm asking but I hope you get my drift.

Edit: I've only now seen your reply to Lootman but have no further time this minute, other than to offer my condolences.

[HerbertViola]

When you say despite presumably having absolutely no effect on IHT due do you wish to expand on what you mean by that comment?

Yes, perhaps I should. Can I put it as a new question?:

Are there any circumstances where the estate of a married person ever be liable for any IHT, if the only beneficiary is the surviving spouse, and no gifts were made in the seven years to prior to death, except gift to the surviving spouse prior to the marriage (and there are no complications due to non-UK nationality/domicile etc.)?

(If the answer is yes, then in this case the gift(s), if they can be said to exist at all given my earlier details, will be far below the IHT threshold on the very worst case finger-in-the-air calculation, though I suppose they could eat in to the transferred nil-rate band which would apply at my own demise.)

Do you think it worth posting the question on (or crossposting to) the Taxes board?

We don't, of course, know the size of your respective Estates nor the amount of your monthly salary (which could be anywhere between say £1,000 and £20,000). Not that I'm asking but I hope you get my drift.

.
No problem. My wife was on an unexceptional salary, but nevertheless many times my own income, during the period which is relevant. Her estate would have been liable for some IHT were it not for the spousal exemption.

Edit: I've only now seen your reply to Lootman but have no further time this minute, other than to offer my condolences.

Thanks, PinkDalek.

[scrumpyjack]

IHT404 specifically mentions this situation and says that it may be a gift.

https://assets.publishing.service.gov.u ... IHT404.pdf

However if the payments in to the account were earnings the gifts out of income rules should by definition apply.

Perhaps one approach would be to put a note about this on the IHT forms saying that these may have been gifts but would in any case qualify for the exemption, and that you do not have available all the records. Leave it to them to pursue if they wish. That way you should be in the clear?

[HerbertViola]

...
Perhaps one approach would be to put a note about this on the IHT forms saying that these may have been gifts but would in any case qualify for the exemption, and that you do not have available all the records. Leave it to them to pursue if they wish. That way you should be in the clear?

Many thanks for this advice and for all the other replies.

Anyway, I decided to phone the IHT Helpline and the adviser seemed to think it was an unusual quesion. Perhaps it is. After some conferring at the other end, I was advised not to bother imputing a gift value. They seemed to me to be trying to answer a slightly different question, i.e. how should I value my wife's share of the joint current account at death, but my attempts to play devil's advocate didn't yield any change of heart.

That's good enough for me at the moment. I'll declare in 'any other info' that I have considered the issue, phoned the helpline, and consequently not imputed any gift value. It saves me a lot of effort, unless and until someone reads it and they change their mind.

Looking again at the IHT205 Notes (IHT206), I see that the fundamental question of whether to impute a 'gift', regardless of any exemption that might apply, doesn't really depend on marital status at all:

You must start with all gifts and transfers that the
deceased made, even those made to their spouse or
civil partner or to a qualifying charity.

So, to my mind, it seems to be a question that either all couples with such joint finances and asymmetric incomes, need to consider, or that none of them do.