financial advice needed please

gratomlin · 1 May 2010 at 12:17PM

my dad is about to give me £50,000 but he is concerned that if he dies within seven years of giving me the money i will be liable for taxation, is this correct what sort of tax will i be expected to pay, i think he is wrong but he insists its correct, any advice will be appreciated.

CLAPTON · 1 May 2010 at 12:24PM

If he dies and his estate at the time plus any gifts made in the last 7 years (with some exception) is more than the inheritance tax limit then his estate will be liable to IHT

you personally will in general not be liable to any tax.
if of course he doesn't give you the 50,000 and he dies then its liable to IHT anyway, so there is no reason for him not to give it to you now.

gratomlin · 1 May 2010 at 12:46PM

thanks Clapton, his estate is much less than £325,000 which is the IHT threshold, so if he dies before handing the money out will his estate still be liable to IHT?, all this seems cold but i just wanna set my dad's mind at rest.

debbie42 · 1 May 2010 at 1:16PM

If your dad died before giving the gift, and the estate was in total less than £325,000 then there would be no inheritance tax to pay anyway.

Aegis · 1 May 2010 at 5:23PM

Essentially it works like this:

Calculate the value of all gifts made in the last 7 years prior to death less any allowances, (most notably the annual gift allowance of £3,000 per donor, can be carried forward by 1 year if unused). In this case, assuming he hasn't made any other gifts in the last 7 years and yours is first, the value of the gift would be reduced to £44,000 for IHT purposes.
Deduct the gifts (after allowances) from the nil rate band (£325,000 per person this year, plus any extra that has been transferred in the event that a spouse dies without using their own nil rate band) in strict chronological order from oldest to newest. When the nil rate band runs out, IHT is chargeable. Any chargeable amount can be reduced by taper relief if the gift was made more than 3 years prior to death.
After dealing with gifts, the estate is considered. Any remaining nil rate band can be deducted from the value of the estate, then IHT is payable on the rest. This can't be tapered or offset by annual gift allowances.

There are, as with all forms of taxation, intricacies. However, the above is the gist of how gifts are generally treated, as long as they aren't gifts into trusts or gifts with reservation.

amcluesent · 1 May 2010 at 6:19PM

>any advice will be appreciated.<

Sounds like IHT won't be an issue. If it was, there's specific life assurance policies for this situation where the pay-out is tapered to match the IHT liability for the 7 year period.

gratomlin · 1 May 2010 at 6:51PM

thanks Debbie42,Aegis and Amcluesent for your advice it is much appreciated

gratomlin · 4 May 2010 at 12:58PM

will i be liable to pay tax on this money?, if so is there a way around paying it?

debbie42 · 4 May 2010 at 1:00PM

Are you talking of the gift? There is no tax to pay on a gift "without reservation" (as I think it's termed?).

cos69 · 4 May 2010 at 1:12PM

At the moment there should not be any tax implications for you or your father, however do this quickly. Before you know it, after the election someone could well introduce "Labours death tax" or something similar which could well hit the value of his estate. Reducing that estate now by £50,000 could well be to your longer term advantage.

gratomlin · 4 May 2010 at 2:08PM

thanks Debbie and cos69 for your help, yes this is a gift :-)

financial advice needed please

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