Tax query on 25k gift for mortgage deposit

ACF_2

We are being givn 25k from grandparents for a deposit on a mortgage. Can we put this in a savings account without worrying about informing the inland revenue? Does the tax just come off of the monthly interest?

jem16

ACF wrote: »

Can we put this in a savings account without worrying about informing the inland revenue?

Yes

Does the tax just come off of the monthly interest?

Yes

Aegis

ACF wrote: »

We are being givn 25k from grandparents for a deposit on a mortgage. Can we put this in a savings account without worrying about informing the inland revenue? Does the tax just come off of the monthly interest?

The only time it will become an issue is if your grandparents die in the next 7 years, at which point some inheritance tax would be due. Hopefully that won't happen!

whiteflag_3

Aegis wrote: »

The only time it will become an issue is if your grandparents die in the next 7 years, at which point some inheritance tax would be due. Hopefully that won't happen!

Why would IHT be due in this situation?

Aegis

whiteflag wrote: »

Why would IHT be due in this situation?

Because it's a gift of 25k, surely? Of course, it's assuming that the estate is larger than the nil-rate band allows, but it's something to worry about isn't it? Or have I missed something obvious?

whiteflag_3

Aegis wrote: »

Because it's a gift of 25k, surely? Of course, it's assuming that the estate is larger than the nil-rate band allows, but it's something to worry about isn't it? Or have I missed something obvious?

Might have been better to say if the total estate is in excess of nil rate band ( x2) and they die within the next 7 years , IHT would be payable, rather than IHT "would be" payable? Not everyone knows about the nil rate band.

Aegis

whiteflag wrote: »

Might have been better to say if the total estate is in excess of nil rate band ( x2) and they die within the next 7 years , IHT would be payable, rather than IHT "would be" payable? Not everyone knows about the nil rate band.

Fair enough, I'll add a bit more detail next time, or possibly change "would" into "could"

bloaty

Does this apply to anyone?

My husband and I are thinking of paying the deposit on a house for our son. We are both still working so the funds are from our income, how much would we be able to gift to him without paying tax please?

Thinking of approx 20% of house price - probably in the region of £100K - £120K property which is similar to the original poster.

It's not worth much in our bank account so he might as well benefit from it while we are alive than when we are dead, LOL.

Myrmidon_J

bloaty wrote:

Does this apply to anyone?

Only two things in life are certain. Death, and taxes.

My husband and I are thinking of paying the deposit on a house for our son. We are both still working so the funds are from our income, how much would we be able to gift to him without paying tax please?

Thinking of approx 20% of house price - probably in the region of £100K - £120K property which is similar to the original poster.

It's not worth much in our bank account so he might as well benefit from it while we are alive than when we are dead, LOL.

Most gifts* above £3,000 (per annum, per person), that remove "value" from your estate, are treated as a potentially exempt transfers (PETs).

There is no tax to pay immediately.

Inheritance tax is payable where the value of the gift exceeds the available 'nil-rate band', currently £325,000. However, the 'nil-rate band' is now transferrable between spouses - effectively creating a £650,000 allowance for a "family".

Assuming rates do not change, your son would only face an IHT charge (and even then, not necessarily; it is the (combined) estates that are charged, not individual gifts; although individual gifts can be subject to tax) if both you and your spouse / civil partner died in the next seven years, and the total value of your estate exceeded £650,000.

Furthermore, after three years have passed, the rate at which IHT is charged decreases, reducing from 40% to 0% after seven years.

It is better (in my opinion) to plan for IHT mitigation - if you feel you might be caught out - sooner, rather than later.

* Certain gifts are entirely exempt - for example, a gift to a child on his / her wedding day. Not sure this is relevant to your case, though!

evenasus

bloaty wrote: »

Does this apply to anyone?
It's not worth much in our bank account so he might as well benefit from it while we are alive than when we are dead, LOL.

That's what I thought a year ago.

I found this site through 'Googling' 'Paying off sons mortgages'
I, or rather we, (husband's arm up his back) thought we'd pay off both our sons mortgages. Total of around £100K.

Just hope we last another 6 years.

sloughflint

bloaty wrote: »

Does this apply to anyone?

My husband and I are thinking of paying the deposit on a house for our son. We are both still working so the funds are from our income, how much would we be able to gift to him without paying tax please?

Thinking of approx 20% of house price - probably in the region of £100K - £120K property which is similar to the original poster.

It's not worth much in our bank account so he might as well benefit from it while we are alive than when we are dead, LOL.

I disagree with a couple of things in post 9.

Assume the amount is 24k and you each gift 12k. Of that 12k, 6k will be IHT exempt using this year's and last year's gift from capital allowance if no other gifts have been made since last year.

So the amount potentially non exempt from IHT is 12k overall or really 6k each.
If you both survive 7 years, no IHT would be due whatever the size of respective estates.

If death(s) within 7 years:

The first to die's allowance will be reduced by 6k.

Bear in mind:

Sometimes, even if your estate is over the threshold, you can pass on assets without having to pay Inheritance Tax. Examples include:

• Spouse or civil partner exemption. Your estate usually doesn’t owe Inheritance Tax on anything you leave to a spouse or civil partner who has their permanent home in the UK - nor on gifts you make to them in your lifetime - even if the amount is over the threshold.

http://www.hmrc.gov.uk/inheritancetax/intro/basics.htm

For the situation of the second spouse also dying within 7 years, their nil rate band would be more than a single allowance if a percentage of their spouse's estate had passed to them.
Their allowance would be the NRB of the year of death multiplied by a factor ( 100% plus percentage of spouse's unused NRB)

There would be no sliding scale if death within 7 years and IHT was payable for these size gifts.

Also the estate pays IHT, not the son directly.