Clarification on gifting money

ca55ie

Apologies if this is in he wrong forum.

I've read many of the posts on gifting money and the implications on inheritance tax and think I do get the jist of it.

My mum wants to give her adult grandchildren gifts of about £8000 each.

My understanding is that

1) Inheritance tax would only be an issue if Mum died within 7 years of the gift and her estate was over the limit.
2) Grandchildren would only be liable for tax on any interest arising if they invest the gift, not on receiving the money itself.

Is that a fair summary?

dollywops

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

Try looking at this. It should give you some help.

Mojisola

The other aspect to consider is whether the gifts would be considered as deprivation of capital by the authorities if she needed to claim benefits or go into care in the years to come. There is no 7 year rule on this - they can look back as far as they want.

Tuesday_Tenor

1) Correct. Note that if she dies within 7 years the value of her estate will include these gifts and they will have to be declared on the IHT form. However, if the resulting estate is still below the IHT threshold, there won't be any tax to pay.

2) Correct. Note I'm reading your use of 'invest' in the general sense of 'savings and investments' that I think you mean it. If the person earns more than the income tax threshold they are liable for tax on ANY earned income over the theshold, which incudes interest on savings held (including interest on savings held as a result of this gift). There is no tax payable on the gift itself, only on subequent interest earned from it.

The other implication you haven't covered is the 'deprivation of assets' issue if in future your mother requires state funding for residential care. If she requires care and has less than (I think) £22,000 of assets then the state will pay BUT they will also check that she hasn't recently (undefined period) given away assets when it could have reasonably been predicted she would need to pay for care. If she had, then the state won't pay, initially making her use any residual savings and potentially chasing the recipients to whom the assets were transferred.

If you Mum's assets are somewhere in the middle between the £22K care threshold (so she'd be paying for care herself anyway) and the approx £300K IHT threshold (so no IHT implications), then she can feel relaxed about these making these gifts.

The other good reason for doing the gifts now is that it can't be done in future if she loses mental capacity. The family might know that she wanted to make such gifts, but it would be impossible to show that it was in her best interests, which is how those with Power of Attorney have to act.

HTH

antrobus

The one thing to note about 'deprivation of assets' is that is has to be "deliberate" i.e. the local authority has to be show that the desire to avoid residential care charges was a "significant" motive. So best not to even consider the question; that way it can't be any kind of motive. (?)

Errata

The other implication you haven't covered is the 'deprivation of assets' issue if in future your mother requires state funding for residential care. If she requires care and has less than (I think) £22,000 of assets then the state will pay

Just wanted to add the rider that State funding will start at c£22k but will only be a percentage of the care costs until assets drop to c£12k when the total cost of care will be State funded, but only up to a certain limit.

ca55ie

Thanks for your replies. Have taken on board the residential care implications.

Mojisola

Not just residential care - any means tested benefits.