Help! EPA and probate worried

[shoemonster]

Really worried – my own fault.
Me and my husband looked after my Mother and I had EPA since 2004, registered with Court of Protection 2007 - solicitor warned me not to take out large sums of money without his prior approval, although she told me to take whatever I needed, as she said it wasn’t much use to her. Mum’s recently passed away.
I was chief beneficiary in her Will (made out before EPA) one sibling to get small fixed amount.
Most I’ve taken out in a year is £3,800 – left more than enough for nursing home and all costs, and my inheritance is a decent sum, but now worried I’ll be in trouble for taking it. Husband said “you were only taking from yourself anyway, as she is leaving it to you” and we were hard up.
Am quite happy to declare all for tax, but worried I’ll be in trouble for taking it in first place. Also worried because I am self employed and earn very little and would not welcome an Inland Revenue investigation (as no-one would!)
Was going to do probate myself and already filled in IHT form, not declaring anything, but decided to get solicitor to do it instead. Took form – solicitor said they had their own forms, but if I didn’t mind he would hang on to that anyway. I’ve now had letter from solicitor asking me to come in and sign forms he’s prepared. I want to declare what I’ve taken, but scared of consequences, so am stalling him – but now worried in case he’s already passed information to Inland Revenue andn that I have lied to him. I thought I’d stayed within the £3,000 per year limit, but haven’t.
Please help.
Thanks

[dzug2]

If the estate is under the IHT threshold then from the tax point of view it doesn't matter one iota what you have taken. There's no tax to pay. And there's no one who can claim to have lost out because you have taken it.

If the total estate is over the threshold then you'll be assessed for IHT. You won't get into trouble - as long as you have correctly declared it and been assessed on it. As the solicitor won't send any forms in until you have signed them there really isn't a problem.

[Buenchico]

Stop worrying!

Firstly, Inheritance Tax (IHT) is completely irrelevant if the value of the estate is less than £325,000. (If that's the case you don't even need to read the rest of this post!).

When calculating the value of the estate, gifts of over £3000 per year, within the last 7 years are taken into account. However any unused portion of the annual £3000 per allowance can be carried over to the following year (but no further). So if you received a gift of £3800 in a year when you'd only received £2200 (or less) in the previous year, you were simply using up your allowance and no part of those gifts will count as part of the estate for IHT purposes.

Even if you did occasionally go over the £3000 annual limit (where you had no transferred allowance from the previous year), it's not going to clobber your mother's estate for a massive amount of tax. If the gift was during the three years prior to your mother's death, the full amount of the excess will count towards the estate. If it was between 3 and 4 years prior to her death, only 80% of the excess will count towards the value of the estate. If it was a year earlier, only 60% counts. In the previous year you only count 40% of the excess. In the year before that just 20% counts.

Note that it's only Inheritance Tax which is relevant here. If your mother had been the richest person in the world she could have given you (through the EPA) billions of pounds a year without a single penny of it counting towards your assessment for Income Tax. (So you've not done anything wrong by not telling the tax man about the gifts you received).

Chris

[dzug2]

And if your fatther's estate did not use its nil rate band (ie everything went to your mother) that £325K is doubled

However Chris' description of taper relief is incorrect - it does exixt yes, but not for small gifts. Only if gifts of more than the nil rate band have taken place. It's a complication you needn't bother with.

[Barmaid]

In addition, to what Chris and dzug have said, the only person likely to complain about deductions under an EPA is the residuary beneficiary of the estate. And given that you are the residuary beneficiary I don't see any problem at all.