Dad wants to help out with debt...is he allowed?

Clasics

I know it probably sounds like a daft question, but my father has offered to pay my £8,000 credit card debts for me. I know I'm incrediblylucky to have a dad like this, and don't worry ALL the cards have now been cut up and I pay cash/debit card for EVERYTHING now. In short, even though it looks like I am 'getting away' with it, the stress I've experienced this last few months worrying about it has made me realise that I will in future get 'things' when I can afford them!

My question is, are there tax implications for such a 'gift'? I'm sure I read somewhere that there is an annual limit on how much money can be given as a gift. TIA!

PS I must make it clear this money is coming out of my inheritance, which is split between my sister and myself. I will receive £8,000 less that my sis, he's going to amend the will.

Kevicho

i think there is a limit per year how much someone can "give away" per year (this helps avoid inheritance tax" however im not sure what this figure is

Check out some legal websites in google, you may find the answer there

lipidicman

Have a look here:
http://www.guardianship.gov.uk/text_version/newsforreceivers_478040A00C6B419C81A2F84DD4E786CA.htm

Annual £3,000 – gifts up to this amount in total are exempt in any one year. If the exemption is not used in a particular year, it may be carried forward for one year only. So if nothing was given in 2003/04, £6,000 may be given in 2004/05. If £2,000 was given in 2003/04, £4,000 may be given in 2004/05.

Potentially exempt transfers (PETs)

Gifts which are not exempt (for example because the amount is too high) are potentially exempt and will become fully exempt if the donor lives for a sufficient period after making the gift. If the donor lives for at least 7 years, the gift becomes exempt. If the donor dies within 3 years, the gift will be treated as part of the taxable estate. If the donor lives for a period of between 3 and 7 years, there is a tax reduction on a sliding scale – the longer the donor survives, the less the tax.

PETs are a useful way of saving Inheritance Tax if the donor has a reasonable prospect of survival. For example, if a person has an estate of £300,000 and does not need it all, a gift of £50,000 will reduce the estate to below the nil rate level provided he or she lives for the necessary period after making the gift.

CLAPTON

your father can give you what he likes... there is no limit and no tax implications for him.
however if he should die within seven years then the gift may be subject to inherence tax according to the usual inherence tax rules. at worst this mean his estate may be (subject to his total estate) have to pay tax of 40% on the sum.

but you would have saved that on cc interest charges by then anyway

CLAPTON

ps ... i had forgotten the carry forward rule as mentioned by licidicman.

assuming he has given nothing away during 2004-5 and this year (2005-6) then he could give you 6000 now i.e. before 5 april (i.e. 2 x 3000) and then £2000 after 6 april (i.e. new tax year) then they will be exempt anyway.


lucky you

THE_LONE_RANGER_4

basically if dad wants to pay your bills theres nothing to stop him etc ,my advise you have cut your cards up good cash and debit cards good ,pay him back monthly payments you and him agree you dont learn nothing if there is no pain . the stress can be awfull but you need to no how it feels to have to pay back also as you say it is comeing out of your inheritence ,there is no inheritence until they pass on so until then it is money your parents they have earned(finance guru alvin halls words) i hope im not coming over as some type of ogre but we have, and do all need ,to no we cant allways be bailed out ,

woohoo_postingid

Surely if your dad pays the credit cards directly and not you, then it can't be classed as a gift?

CLAPTON

if the credit cards are in clasic's name then his/her father paying the bills is a gift and would be a potential exempt transfer for inherence tax purposes.

lipidicman

woohoo_postingid wrote:

Surely if your dad pays the credit cards directly and not you, then it can't be classed as a gift?

I'm not sure what difference you think this would make.

To the OP: I also agree that your father should make you pay him back. It is common for people who are 'bailed out' to breathe a sigh of relief and then.....

....get themselves into bigger trouble than before. The requirement to pay back this money would make you think and make some tough choices!

Clasics

Many thanks for the replies, I really appreciate you taking the time. I absolutely agree with the view that the money should be paid back and I have told him that is what I want to do but he's adamant that he doesn't want paying back, although he has agreed to amend the will so that I get £8,000 less than my sister. I think I may try a different approach, let him open accounts in my 2 sons' names and let me pay him back through them? Good idea? He hasn't given me any money before, so am I right in saying he can give me £6,000 this year? Or can he also split the gift between myself and my wife? Once again, many thanks for your replies, it is very much appreciated.

PS Forgot to say, my dad's estate won't be anything like the inheritance tax threshold, his house is curently worth approx £140,000 (we live oop north) and he has quite a bit of saving but nowhere near enough to push the estate into inheritance tax territory.

CLAPTON

on reflection the full situation about gifts is

one can give anything to anyone witout the giver being subject to tax, however there may be inherence tax implications for the ESTATE if the giver dies within seven years.

however

one can give £3,000 per year to someone without any inherence tax liability and you can carry over one year, but you cannot give £3,000 to more than one person so No he would not be able to give 3k to you and 3k to OH.

however, if your mother is alive, she can give you 3000 even if its dads money, technically he would give it to her (husbands/wifes transfers are exempt for inherence tax) then she would give it to you.

Not knowing your dad age or health, you may consider the inherence tax situation simply doesnot matter....after all if he doesnot give it to you now and he dies anyway (sorry but just saying how it is) you will anyway pay the inherence tax won't you.

so your realistic options are to avoid issue of inherence tax:
Dad only option:
dad gives £6,000 to you before end of tax year this being his 2004-5 and 2005-6 allowances
then dad gives you £2,000 next tax year i.e. 2006-7 (after 6 april 2006)
or if mum alive
dad and mum give you 3k each now and 2k later or any combination.


anyway the issue of inherence tax is a bit of a red herring so take the money and reward your dad in the only way he will care about and thats by showing that from now on you will look after the money ok and the lessons learnt.

finally and none of my business really but dont beat yourself up about paying him back, if he can afford it and he's happy to give you the money, thats fine. my final final thought is maybe ...just maybe and i know nothing of his circumstances but maybe he could give your sister an equal amount even if it has to be phase over a period of time?