the law relating to gifting

jamescredmond · 30 October 2006 at 7:35AM

hi y'all,

apologies first if this question has already been asked.

I would like to gift my children (2) some money.
I believe the max. amount in any one calendar year is £3500 per (in this case) child without attracting any tax liability on either side.

I'm getting conflicting advice on this and would be grateful for any help.

many thanks.

Bossyboots · 30 October 2006 at 8:55AM

The figures and rules are set out here http://www.direct.gov.uk/MoneyTaxAndBenefits/Taxes/InheritanceTaxEstatesAndTrusts/InheritanceTaxArticles/fs/en?CONTENT_ID=10010612&chk=9Tm0VZ

Tiggs_2 · 30 October 2006 at 9:31AM

yo can give them whatever you like.....the only issue is if you die within 7 yeras and your esate + those gifts is over the nil band (285k and rising)

if you want to stick to limits that will not cause the above issue then its £3k per year (its not per child....do you think people with 8 kids can give away 8 times someone with 1?)

"I'm getting conflicting advice on this and would be grateful for any help."

conflicting advice? if you are being wrongly advised on this issue then your advisers are very poor indeed.

EdInvestor · 30 October 2006 at 10:26AM

Gifts that are part of your normal expenditure

Any gifts you make out of your after-tax income (but not your capital) are exempt from Inheritance Tax if they’re part of your regular expenditure. This includes:

* monthly or other regular payments to someone, including gifts for Christmas, birthdays or wedding/civil partnership anniversaries
* regular premiums on a life insurance policy (for you or someone else)

It’s a good idea to keep a record of your after-tax income and your normal expenditure, including gifts you make regularly. This will show that the gifts are regular and that you have enough income to cover them and your usual day-to-day expenditure without having to draw on your capital.

This is the one people often miss and yet it offers considerable scope for people who are reasonable well off, with no 7 year rule.

jamescredmond · 30 October 2006 at 4:02PM

Tiggs wrote:

yo can give them whatever you like.....the only issue is if you die within 7 yeras and your esate + those gifts is over the nil band (285k and rising)

if you want to stick to limits that will not cause the above issue then its £3k per year (its not per child....do you think people with 8 kids can give away 8 times someone with 1?)

"I'm getting conflicting advice on this and would be grateful for any help."

conflicting advice? if you are being wrongly advised on this issue then your advisers are very poor indeed.

which is why I have the nerve to ask other mse members for advice.

chesky369 · 30 October 2006 at 4:17PM

"....do you think people with 8 kids can give away 8 times someone with 1?"

I don't know about the original poster but, well, actually I did Tiggs. Ignorance is no crime - the crime is not learning when the facts are shown to one. That's why people join boards like this - to gain from others knowledge. And I think your tone is unnecessarily sharp.

Chrismaths · 30 October 2006 at 5:19PM

Giving away money out of income must also meet the "regular" test - you must keep giving away money. The most common use of this (if you don't need the money at all) is the back to back. You buy an annuity and use the income to fund a regular premium whole of life assurance policy in trust, or for someone else, which is outside your estate immediately.

This means that the sum assured is instantly outside your estate. The revenue are pretty tough on the "regular" test, and the "quality of living" test, good documentary evidence needs to be kept.

It's not a panacea.

EdInvestor · 30 October 2006 at 5:53PM

I assume that it's not necessary to actually buy products to do this ( like annuities and WoL policies in trust)?

One could for instance invest in a portfolio of shares (or equity funds) and then give away the dividend income on a regular basis (assuming one didn't need it for living costs), making sure there is a clear 'paper trail' of the regular gifts in case the revenue wanted to see it?

Obviously this would mean the portfolio capital would still be in one's estate but then 60% of a pile of money is always better than no pile of money at all IMHO, and the overall amount would surely be larger

Chrismaths · 30 October 2006 at 6:55PM

One could for instance invest in a portfolio of shares (or equity funds) and then give away the dividend income on a regular basis (assuming one didn't need it for living costs), making sure there is a clear 'paper trail' of the regular gifts in case the revenue wanted to see it?

Yep, that would work with the usual caveats about records and not degrading standard of living, and being regular.

Obviously this would mean the portfolio capital would still be in one's estate but then 60% of a pile of money is always better than no pile of money at all IMHO, and the overall amount would surely be larger

Usual BS Ed. In fact what I describes GUARANTEES a certain level of assets to be passed on. What happens is you buy an annuity with (say) £100k, then you use the income to buy a regular premium whole of life policy. This gives you a sum assured (age and health dependent) in excess of £100k. 60% of something is more than 100% of nothing. However 60% of something is less than 95% of the same thing.

EdInvestor · 30 October 2006 at 7:05PM

Well it depends rather, doesn't it?

If you invest the 100k in a portfolio of shares which pay an annual yield of 5k* and give that money away over 10 years you will have given away 50k.At the same time, your capital is (very conservatively) likely to have increased to 150k if not a lot more over the period.

If the money was within the nil rate band, the heirs would receive a total of 200k.If it was over the nil rate band, then the total received would be 50k in income + 150k in capital minus 60k IHT = 90k capital, for a total of 140k in all.Plus that 50k received on an annual basis could itself be invested to generate additional returns.

All in all, somewhat more than 100k.

*Oh and if you were a basic rate taxpayer you wouldn't be paying any tax on the 5k either

Nor need you pay any tax on the capital gains if you manage the portfolio appropriately.

Tiggs_2 · 31 October 2006 at 1:46AM

chesky369 wrote:

I don't know about the original poster but, well, actually I did Tiggs. .

then you have applied neither common sense nor anything other than 30 seconds of research to the topic.

the law relating to gifting

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