Giving money to adult children

EdGasket

Re. "There IS NO TAX ON GIFTS in the UK' ....I wonder where I got the £3k limit or £10k in the year of their marraige from then? Is that only if you don't survive a further seven years then anything in excess gets liable for inheritance tax?

EdGasket

OK yes reading the replies more closely, I gather the only possible liability would be inheritance tax. Thank you all for your help !

CLAPTON

JamesU wrote: »

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

your understanding of taper relief is incorrect.. it only applies if the gifts made in the 7 years are in excess of the IHT allowance and not for gifts totalling less than IHT limit

RayWolfe

JamesU wrote: »

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

I don't know how else to put it. There is no such thing as a Gift Tax in the UK. None. Zilch. Nothing.
I can give a gift to anyone, it will not cost them a dime, a cent, a penny.
It may cost my estate, it may cost me. It will not cost the beneficiary.

magpiecottage

If you go above the limits described above it will be what is known as a Potentially Exempt Transfer. This means it has the potential to be exempt if you survive the gift by seven years.

If not, then it counts as part of your estate when the tax is calculated.

However (and this is the point that most financial advisers don't understand), when the size of the estate is calculated, the assets are added in the order in which they were given away - so that whatever was still owned at death is last.

This means the earlier gifts use up the nil rate band first.

That, in turn, means unless gifts in the last seven years exceed the nil rate band there will be no tax to pay on them.

On the other hand, more of the residual estate will be subject to tax.

It is possible for the beneficiary of a gift to find themselves having to pay some Inheritance Tax. This would occur if the gifts in the last seven years exceeded the nil rate band and the residual estate had insufficient assets to meet the tax bill. That is an unlikely scenario for most of us.

EdGasket

Lets just hope I live another seven years; makes things a lot simpler all round

EdGasket

Out of interest, how would my executor and/or HMRC know what had been given away in the last seven years unless I kept a clear record? Seems to me it would be hard to find amongst all the other payments to pension, brokers, investments, bills etc. I literally have thousands of pounds going through my current account each month (just paid 14K for conservatory) so how can these 'gifts' realistically be detected in practice?

evenasus

EdGasket wrote: »

Out of interest, how would my executor and/or HMRC know what had been given away in the last seven years unless I kept a clear record?

I presume they have their ways.

When we paid our sons mortgages off, we didn't just hand them the money. We paid the money online, direct to the Building Societies involved.

Funnily enough, my first post on MSE was more or less asking the same as you. http://forums.moneysavingexpert.com/showthread.html?t=819231&highlight=

JamesU

EdGasket wrote: »

Out of interest, how would my executor and/or HMRC know what had been given away in the last seven years unless I kept a clear record? Seems to me it would be hard to find amongst all the other payments to pension, brokers, investments, bills etc. I literally have thousands of pounds going through my current account each month (just paid 14K for conservatory) so how can these 'gifts' realistically be detected in practice?

This is why it is recommended to keep a record of any large gifts made....but not relevant with gifts between married partners which are exempt. The executor has to sign off that a check has been made for any substantial gifts when submitting HMRC documents, but would only be an issue if the deceased's sole assets are over the IHT threshold. As with Evanasus, no idea on my side how often HMRC checks this but yes, presumably via bank statements etc......

JamesU

JamesU

CLAPTON wrote: »

JamesU wrote: »

your understanding of taper relief is incorrect.. it only applies if the gifts made in the 7 years are in excess of the IHT allowance and not for gifts totalling less than IHT limit

Thanks for the feedback. Have understood and alluded to this in (i) gifts above IHT threshold and (ii) gifts below IHT threshold.


JamesU