Inheritance tax - payments for child

Linton

If a parent gifts money to a family member it is subject to a 7 year period during which the gift will be disregarded when calculating inheritance tax.

What about if the parent pays for a child's university tuition fees? ie pays the bill rather than transfers cash? I see a broad range of grey areas here - eg buys the child a bar of gold at one end to not charging the child the market rate for board and lodging at the other.

diable

How much cash is involved?

CLAPTON

Linton wrote: »

If a parent gifts money to a family member it is subject to a 7 year period during which the gift will be disregarded when calculating inheritance tax.

What about if the parent pays for a child's university tuition fees? ie pays the bill rather than transfers cash? I see a broad range of grey areas here - eg buys the child a bar of gold at one end to not charging the child the market rate for board and lodging at the other.

firstly no

the 7 year period means that AFTER that period gifts from capital are outside IHT

gifts from income are not relevant to IHT either

I have never heard of a parent paying uni fees or paying their child's maintenance has been considered a gift for IHT purposes

board and lodging would clearly be considered expenditure from income
Maybe you are over thinking the issue

Linton

CLAPTON wrote: »

firstly no

the 7 year period means that AFTER that period gifts from capital are outside IHT

gifts from income are not relevant to IHT either

I have never heard of a parent paying uni fees or paying their child's maintenance has been considered a gift for IHT purposes

board and lodging would clearly be considered expenditure from income
Maybe you are over thinking the issue

On the 7 year period - that's what I meant.
On the payment from income - I know that, I am assuming all payments from capital.

On the gift of non cash items things must be more complex...

What about a grand parent or a friend providing the payment?

Clearly there must be a point at which some non-cash gifts are subject to inheritance tax. Gold bullion for example must surely be, otherwise its an easy avoidance scheme. Similarly shares. What about a car? Then as I suggested there is a whole range of possible "gifts" up to the extreme example of free board and lodging, where the friend/grandparent is living off savings.

CLAPTON

Linton wrote: »

On the 7 year period - that's what I meant.
On the payment from income - I know that, I am assuming all payments from capital.

On the gift of non cash items things must be more complex...

What about a grand parent or a friend providing the payment?

Clearly there must be a point at which some non-cash gifts are subject to inheritance tax. Gold bullion for example must surely be, otherwise its an easy avoidance scheme. Similarly shares. What about a car? Then as I suggested there is a whole range of possible "gifts" up to the extreme example of free board and lodging, where the friend/grandparent is living off savings.

non cash gifts are no different to cash gifts except for their valuation

SeniorSam

Gifting of any asset (gold bar etc) may be subject to Capital Gains tax on the value on the day it is gifted compared with the day it is bought, but as far as IHT is concerned, each person can gift only up to£3000 in a single gift in any tax year, which will not be counted in the estate of the person making the gift when they die. Don't try and be 'smart'. The Revenue are aware of all the angles and you simply would not get away with it.

Normal Expenditure Relief is based on payments that have been set up to be made 'on a 'regular basis' out of income, that does not reduce the normal standard of living of the person making the payments. Ideally it should be set up as a standing order, or D/D, so that there is a complete paper trail that can be inspected by the Revenue if necessary.

Hope this helps

Sam

donquine

There's a specific exemption from IHT for parents supporting their children in full time education. A grandparent or friend would not come under this provision.

When it comes to giving money/assets away, there's more to consider than IHT. Of course, some time should be spent considering the IHT angle, but if the donor plans on giving away £20k in school fees to a distant relative or friend, but the rest of their estate to their UK domiciled spouse, IHT may completely fall out of the picture.

If you give assets instead of cash, they will be considered as a PET in the same way cash will, but then you'll also have CGT to think about. Cash is exempt from CGT, but most assets aren't. Disposing of a £20k asset may well result in a CGT bill payable up front, disposing of £20k in cash definitely won't. You need to look at the bigger picture.

CLAPTON is broadly right in saying non-cash gifts are treated the same as cash gifts, but you then have to consider special reliefs for certain assets - like shares held in a business. Business property relief could in the right circumstances exempt the whole gift, but then what would the donee do with the shares? They would have to be sold and it might be difficult to find a buyer. Or the value on realisation could be very different to the value the donor would have wanted to give in cash.

In short, tax planning is generally very complicated. But if you want to support your children (biological or step, makes no odds) through university, that's not complicated at all. If you bear in mind that the government expects and actively encourages parents to support their children through university, it's reasonable to assume there's some sort of provision for this in the tax laws. And in fact, there is.

CLAPTON

donquine wrote: »

There's a specific exemption from IHT for parents supporting their children in full time education. A grandparent or friend would not come under this provision.

When it comes to giving money/assets away, there's more to consider than IHT. Of course, some time should be spent considering the IHT angle, but if the donor plans on giving away £20k in school fees to a distant relative or friend, but the rest of their estate to their UK domiciled spouse, IHT may completely fall out of the picture.

If you give assets instead of cash, they will be considered as a PET in the same way cash will, but then you'll also have CGT to think about. Cash is exempt from CGT, but most assets aren't. Disposing of a £20k asset may well result in a CGT bill payable up front, disposing of £20k in cash definitely won't. You need to look at the bigger picture.

CLAPTON is broadly right in saying non-cash gifts are treated the same as cash gifts, but you then have to consider special reliefs for certain assets - like shares held in a business. Business property relief could in the right circumstances exempt the whole gift, but then what would the donee do with the shares? They would have to be sold and it might be difficult to find a buyer. Or the value on realisation could be very different to the value the donor would have wanted to give in cash.

In short, tax planning is generally very complicated. But if you want to support your children (biological or step, makes no odds) through university, that's not complicated at all. If you bear in mind that the government expects and actively encourages parents to support their children through university, it's reasonable to assume there's some sort of provision for this in the tax laws. And in fact, there is.

a bit of searching shows up Inheritance Tax Act 1984 section 11