A HMRC inheritance tax warning has been issued after the taxman started to pursue UK households. Gary Rycroft, from BBC One programmes Rip Off Britain and Morning Live, has spoken out in reply to a concerned taxpayer.
Taxpayer's Dilemma Over Cheques
The taxpayer wrote into the Telegraph and said: "I am the co-executor of my late father’s estate. He died last year and during the final decade of his life, I was his primary carer.
"Despite being an intelligent and well-educated man – he was a practising solicitor for many years – my father had no digital footprint whatsoever: no email, no smartphone, no mobile phone and no internet banking.
"As his mobility declined, I purchased his day-to-day essentials and paid his other carer directly. He reimbursed me by cheque. It was, given his circumstances, the most practical and transparent method available to him.
"I should note that the reimbursement amounts were often higher than might be expected for a person of his age, largely because my father was a heavy smoker – a significant and consistent element of his weekly expenditure.
"A standing order or direct debit would not have been a workable alternative, as his needs and therefore the sums involved varied week to week.
"The problem I now face is that my co-executors are characterising these cheques as gifts, bringing them within the scope of the seven-year rule for inheritance tax purposes. I dispute this: they were reimbursements for documented expenditure, not transfers of wealth.
"Regrettably, I did not retain receipts at the time. I was focused on caring for my father, not anticipating an estate dispute."
Gary Rycroft's Advice
Gary replied explaining HMRC is concerned with the substance of a transaction, not the mechanism by which it is settled. Gary recommended writing a formal written statement explaining the arrangement, or offer an “indemnity” to them for any additional inheritance tax that could arise were HMRC ever to challenge that treatment successfully.
