How does the tax man know?

Poppy9

And if your mother paid you rent you would have to declare it to the tax man so he is getting his money one way or another. If you just pretended your mother was paying you rent then you would still have a tax bill but no rent income.

Sounds like win win for IR

molly_2-2

Thanks very much again, Paul, for your advice about changing the will with regards to my parents' house. In my case, my mum died some years ago, so the advice comes too late, but I'm hopeful someone else will learn something useful here. It's certainly made me think about planning ahead for what happens when my time comes!

Patr100

Poppy9 wrote:

And if your mother paid you rent you would have to declare it to the tax man so he is getting his money one way or another. If you just pretended your mother was paying you rent then you would still have a tax bill but no rent income.

Sounds like win win for IR

If we later sold the house - not being our main home - we would have Capital Gains Tax to pay though despite this, overall this would have been less than the expected IHT burden and split beteen three people as owners - myself and my two brothers-possibly subject to taper - So in theory it would have saved us money but yes, they try to get some of it one way or another.

roger56

How does the taxman know....?

This may give you an insight into how and also reasons not to avoid paying tax.
The article was related to property tax issues but is very applicable to all taxes:

http://www.property-tax-portal.co.uk/taxarticle5.shtml

Ian_Shearer

There is one rarely used loop hole that may be of interest to anyone who owns a private business eg a shop or small company.

If your parents have an estate that will be liable to IHT and they are willing to do this you can sell them shares in your business provided it is not quoted on any European main stock exchange, an AIM listing is OK. The qualifying limit your parents must survive as holders is two years not seven.

Now let's say you sell your father £100,000 worth of shares for £100,000. You get the cash and he gets the shares. There is no tax liability arising. On the death of your father he has bequeathed his shares back to you. Because these are not QUOTED shares in a company they qualify for 100% IHT relief, so the 40% tax you would have paid if you had inherited the cash is avoided.

You can do it again, if say your mother lasts another two years you can sell the shares to her and save another IHT tranche.

Helen_from_yorkshire

I guess the best way to avoid the tax man becoming aware of any gifts would be for the elderly relative concerned to withdraw the money from their account in cash and for them then to give their son/daughter or whoever the money in cash. The person in receipt of the money could then use the cash to pay towards credit cards or whatever in cash and no one would be any the wiser, I assume. Even after the elderly relatives death the tax man would have no idea where the money withdrawn went to.

Feej_2

Re avoiding IHT on property, there is something called a Lifetime Asset Trust which may be useful. The parents' property is put into the LAT and the parents become trustees along with any children who they wish to inherit. The trust then owns the property. After the death of both parents the trust is dissolved and the remaining trustees inherit. This does depend on at least one parent surviving the 7 year period but I understand that a taper would come into operation any time over 2 years from set up.

This may also be useful in protecting property from local authority claws in the event of residential care, as I am advised that they will go after the easy money first and the deterrent effect of a LAT may help. Please note I am not a professional and am only speaking from experience.

In the event our LAT was dissolved 2 years after setting up, following my mother in law's death as we decided on an alternative method of caring for my father in law, and its protective power was not tested. It's worth noting that any scheme of this type should have the elderly person's interests as a priority because they are handing over their assets for no gain. I'd be interested to know if anyone else has experience of this type of trust.

Skintmama

I have been reading this thread and am not sure if I have got things clear in my head regarding the monetary gifts.

My husband has received substantial gifts of "£20-30,000" from his parents estate (they are both still living) for which he has had to sign a declaration that he has received them. Are we supposed to declare these as income or only declare them when the death of one of his parents occurs?

Also, my mother has helped us out over the last couple of years by paying my daughter's tuition fees since she became school phobic. I have no income of my own so she pays it to me (via bank transfer) and I pay the tutor. This amount does come well below what my Personal Allowance would be so should I be declaring this too? I do have receipts to show all this money has gone to tutoring.

Also is all this info relevant for Tax Credit applications too?

Sorry for all the daft questions but I get in a muddle trying to work things out from the Inland Revenue site.

johnllew

Helen_from_yorkshire wrote:

I guess the best way to avoid the tax man becoming aware of any gifts would be for the elderly relative concerned to withdraw the money from their account in cash and for them then to give their son/daughter or whoever the money in cash. The person in receipt of the money could then use the cash to pay towards credit cards or whatever in cash and no one would be any the wiser, I assume. Even after the elderly relatives death the tax man would have no idea where the money withdrawn went to.

That's not avoidance, it's evasion for which there are severe penalties.

Skintmama wrote:

My husband has received substantial gifts of "£20-30,000" from his parents estate (they are both still living) for which he has had to sign a declaration that he has received them. Are we supposed to declare these as income or only declare them when the death of one of his parents occurs?

Also, my mother has helped us out over the last couple of years by paying my daughter's tuition fees since she became school phobic.

Neither is classed as income and need not be declared as such.

henryhallsdanceband

On this same theme. As I have posted elsewhere today my wife is paid directly by a consultant for private nursing work she does for him. Now he is not going to have to tell the taxman WHERE, HOW or on WHAT he spends his income - so how would the taxman ever find out my wife was getting paid for private work. Unless of course as part of HIS return he declares payments made to my wife as business expenses.

Only interested.