Giving money to adult children

EdGasket

Not sure if this is the best forum as it's not exactly saving but I just want to know what the position is about 'helping' children over 18 financially. I think I read somewhere that if I give a child more than £3,000 in one tax year (£10K in the year they get married) then they will be libale to pay tax on it? Is that correct? Seems unfair when I have already paid tax on that money ! If the £3,000 figure is correct does this only apply to your own children only or could I also give £3,000 to a son-in law without it being treated as his income and taxable?
What then would be the position if I wanted to help a child buy a house and needed to give a much larger amount than £3,000 for a deposit? Would that be liable for tax?

Thanks for all advice,

G_M

I think you are referring to Inheritance Tax liability in the unfortunate situation where you die within 7 years of making the gift.

Full details are here.

JamesU

EdGasket wrote: »

Not sure if this is the best forum as it's not exactly saving but I just want to know what the position is about 'helping' children over 18 financially. I think I read somewhere that if I give a child more than £3,000 in one tax year (£10K in the year they get married) then they will be libale to pay tax on it? Is that correct? Seems unfair when I have already paid tax on that money ! If the £3,000 figure is correct does this only apply to your own children only or could I also give £3,000 to a son-in law without it being treated as his income and taxable?
What then would be the position if I wanted to help a child buy a house and needed to give a much larger amount than £3,000 for a deposit? Would that be liable for tax?

Thanks for all advice,

If you are married, transfers between the two of you are free from future IHT liabilities (if UK, excluding foreign domicile which is more complex). So potentially you could transfer £3K to your wife and she could also contribute, hence £6K/yr instead of £3K. Also if you have not used last financial year's allowance, you can both use this too.

JamesU

RayWolfe

There IS NO TAX ON GIFTS in the UK.
If you give more than £3K in one year and then die within seven years of the gift, it MAY affect Inheritance Tax.

JamesU

RayWolfe wrote: »

There IS NO TAX ON GIFTS in the UK.
If you give more than £3K in one year and then die within seven years of the gift, it MAY affect Inheritance Tax.

Yes, that is what G_M just said

JamesU

JamesU

EdGasket wrote: »

Not sure if this is the best forum as it's not exactly saving but I just want to know what the position is about 'helping' children over 18 financially. I think I read somewhere that if I give a child more than £3,000 in one tax year (£10K in the year they get married) then they will be libale to pay tax on it? Is that correct? Seems unfair when I have already paid tax on that money ! If the £3,000 figure is correct does this only apply to your own children only or could I also give £3,000 to a son-in law without it being treated as his income and taxable?
What then would be the position if I wanted to help a child buy a house and needed to give a much larger amount than £3,000 for a deposit? Would that be liable for tax?

Thanks for all advice,

And in fact, if you use double allowances from husband/wife=£6K carried forward to this financial year from FY 2008-09, then add £6K for FY 2009-10 (before April 6ish 2010) and then another £6K after say April 10th 2010 for the FY 2010-11, you can actually give your son £18K without worrying about dying over the next 7yrs. Just have to juggle the finances and keep a record of the gifts.

Somebody correct me if I am actually wrong on this.

JamesU

CLAPTON

there is no income tax liabiltiy on gifts of any amount whether family or not

if your estate is above the IHT limit and you die your estate pays IHT

if you give money away now and you die within 7 years the amount of money you gave away is added back for IHT purposes and your estate will pay the same amount as before, so the possibilty of IHT and death with 7 years makes no difference to the IHT paid.
In other words you may just as well give what you like now as you estate will pay tax on it anyway when you die (except as below)

if you give money away and you don't die within 7 years then there is no IHT liablity on the gifted money

if you primary concern is avoiding some IHT and you feel you may die within 7 years then there are various exemptions that have already been referred to.

evenasus

I agree with Clapton.

I/we paid our sons mortgages off two years ago - just hope we live another 5 years.

They may as well have the money now, as wait until we're dead.

RayWolfe

JamesU wrote: »

Yes, that is what G_M just said

JamesU

Reread what both of us wrote and you will discover the crucial difference: "There IS NO TAX ON GIFTS in the UK."

JamesU

RayWolfe wrote: »

Reread what both of us wrote and you will discover the crucial difference: "There IS NO TAX ON GIFTS in the UK."

RayWolfe, yes have re-read what both you and G_M have written and I have not discovered the crucial difference. I did not understand the meaning of your statement as it was not specific enough:

"There IS NO TAX ON GIFTS in the UK."

(i) This would be definitely correct if it read "There IS NO INCOME TAX ON GIFTS in the UK."

(ii) This could be incorrect if it read "There IS NO CAPITAL GAINS TAX ON GIFTS in the UK." Example: you buy land for £10K, it increases in value to £110K in a year. You gift the land to somebody other than your wife. After deducting an annual CGT allowance of approx £10K, 18% CGT to pay on the £100K? Yes or no?

(iii) This could be correct or incorrect if it read "There IS NO IHT TAX ON GIFTS in the UK." Example: gifts made that take you over the IHT sole asset threshold. Discussion on this as in the thread. And yes, as you correctly say, there MAY be IHT tax liabilities.

Maybe I am missing the obvious, but what is the crucial difference you are referring to here? Perhaps I am getting a bit dozy this Sunday evening?

JamesU

JamesU

CLAPTON wrote: »

t/QUOTE]

Clapton, thanks for these comments which are obviously correct in principle, but I think they are a little over-generalised within the context of making gifts without incurring a potential IHT liability. The generalisations could lead to unnecessary misconceptions as written, so I have elaborated on these a little:

.there is no income tax liabiltiy on gifts of any amount whether family or not

Agreed

if your estate is above the IHT limit and you die your estate pays IHT

Agreed. But (i) if the gifts made take you over the IHT limit there is no need to incur
this additional IHT liability if the gifts are made in a tax efficient manner as described in the thread above; and (ii) even if the gifts do not take you over the IHT threshold, the additive effect of these on the sole assets of the deceased would reduce further the % IHT threshold that is subsequently transferred to the married partner, potentially just deferring a tax liability later on second death. This is also avoided if the gifts are made in a tax efficient manner.

if you give money away now and you die within 7 years the amount of money you gave away is added back for IHT purposes and your estate will pay the same amount as before,
so the possibilty of IHT and death with 7 years makes no difference to the IHT paid.

Disagree: the same amount of IHT would be paid only for the first 2 yrs. After this there is a reduction in IHT liability on a sliding scale, when death occurs between 3-7 years with IHT taper relief 20-100%. And as above, this can all be avoided with efficient tax planning in any case.

In other words you may just as well give what you like now as you estate will pay tax on it anyway when you die (except as below)

Disagree: quite misleading and will try to clarify with the very simplest example: the deceased had sole assets of £325K. A gift of £18K is made to children and there is the £3K gift allowance. With no tax efficient planning for the gifts, £325K allowance used up, and IHT tax to the estate is £18K-£3K = £15K x 40% =£6K tax to pay. If the £18K is gifted as discussed in the thread above, £0 tax to pay.

if you give money away and you don't die within 7 years then there is no IHT liablity on the gifted money

Agree

if you primary concern is avoiding some IHT and you feel you may die within 7 years then there are various exemptions that have already been referred to.

Agree, as outlined in the link provided by G_M in thread above, and using tax efficient methods of gifting multiple £3K gift allowances including using both partners £3K allowance, bringing forward allowances from a previous year, and judicial timing of the date of gifts within the financial tax years.


EdGasket: I tried to explain that it may be possible to give up to £18K in gifts to children without any need to consider potential IHT liabilities whatsoever (assuming no large gifts had been given in those years already, and a married partner's allowance is also used). In effect it means gifting £12K before the end of this financial year and then another £6K in the new financial year, total = £18K. If anybody feels I have overlooked something in error here, please do let me know. I am sure there must be an accountant out there somewhere who can confirm this also.

I am not a solicitor, accountant or financial expert