Granny's Gift at Christmas

dodo69

Mum wants to give her 10 grandchildren a gift of £1000 each at Christmas (to start Savings accounts). What are the tax implications for her (OAP paying tax on business) and the children who range in age from 2 to 22. Any advice welcome.

CLAPTON

there is no tax on gifts


if her estate is over the IHT alllowance and she should die within 7 years then the gifts will form part of her estate for IHT purposes jus as they would if she hadn't given the gifts

McKneff

£10k is a lot to give away, have a look at Depriation of Assets,
It may apply or may not but its another slant on the situation.

At the same time, I think your mum is brilliant,

ceeforcat

There is an annual gift exemption of £3000, and £3000 if not used last tax year. Accordingly, if she were to give each child £600 at Christmas and a further £300 after the start of the new tax year, there would be no problems. (£100 each less than required but, there we go!)

tyllwyd

I wonder if it might be better to make small regular gifts, so they are gifts out of normal expenditure
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/InheritanceTaxEstatesAndTrusts/InheritanceTaxwhenpassingonmoneyorproperty/DG_179336

thenudeone

ceeforcat wrote: »

There is an annual gift exemption of £3000, and £3000 if not used last tax year. Accordingly, if she were to give each child £600 at Christmas and a further £300 after the start of the new tax year, there would be no problems. (£100 each less than required but, there we go!)

There is no tax on gifts.

Anyone can give anyone else an unlimited amount as a gift without having any tax liability arising.

You are getting confused with inheritance tax.

If the donor dies within 7 years of making a gift then the a percentage (on a sliding scale) of the gift's value will be added into the estate for inheritance tax purposes.
But if the estate is below the IHT threshold (currently £325k http://www.hmrc.gov.uk/rates/iht-thresholds.htm) there will still be no tax to pay.
Certain gifts are excluded altogether including:
1) £3k per annum in total
2) extra amounts for wedding gifts
2) regular gifts given out of income
3) unlimited small gifts (£250 per recipient)
4) gifts to legal spouses
5) gifts to charities etc.

but there is no tax on gifts themselves.

ceeforcat

thenudeone wrote: »

There is no tax on gifts.

Anyone can give anyone else an unlimited amount as a gift without having any tax liability arising.

You are getting confused with inheritance tax.

If the donor dies within 7 years of making a gift then the a percentage (on a sliding scale) of the gift's value will be added into the estate for inheritance tax purposes.
But if the estate is below the IHT threshold (currently £325k http://www.hmrc.gov.uk/rates/iht-thresholds.htm) there will still be no tax to pay.
Certain gifts are excluded altogether including:
1) £3k per annum in total
2) extra amounts for wedding gifts
2) regular gifts given out of income
3) unlimited small gifts (£250 per recipient)
4) gifts to legal spouses
5) gifts to charities etc.

but there is no tax on gifts themselves.

Yes - Thank you - I am aware of all that as (hopefully) at least some of my posting record on here will confirm. I was merely adding to Clapton's advice above. I believe that the question of 'tax on gifts' is one of the most asked question on this forum.

dodo69

So as long as her estate is under the Inheritance Tax threshold she can give each grandchild a cash gift of £1000 without anyone having a tax implication? Sorry but I am still confused.

Caz3121

Yes she can however if she is claiming or in the near future applies for means tested benefits they may treat her as still having the £10k

Savvy_Sue

dodo69 wrote: »

So as long as her estate is under the Inheritance Tax threshold she can give each grandchild a cash gift of £1000 without anyone having a tax implication? Sorry but I am still confused.

At the risk of confusing you further, or repeating other posters' advice, I think there are 3 separate things to think about / know / consider.

1a. Anyone can give anyone else as much money as they like for any reason and the taxman doesn't care (unless the donor is employing the recipient).

1b. The recipient doesn't have to pay tax on or declare this gift. Obviously if they put it in an interest-bearing account then the interest becomes taxable if they have to pay tax on interest: children usually don't because their income is well below their personal allowance.

2a. If a donor gives large sums of money away, AND dies within 7 years, IGNORE WHAT I SAID AND SEE CLAPTON'S POST BELOW! [STRIKE]then the value of their estate for inheritance tax purposes is calculated as if they had NOT given this money away, on a sliding scale. Survive 1 year, and more of these gifts have to go into the estate 'pot'; survive 6 years and less goes in. So if the donor's total estate (including any gifts during the last 7 years) is NOT liable for IHT, then there is no tax to pay and no-one cares how much the donor gave away. [/STRIKE]

2b. And as well as the above, donors may give up to £3000 in each tax year which won't 'count' in the estate 'pot', and you can give two years' worth away in one tax year if you haven't used this 'allowance' in the previous tax year, so if your mum didn't give any gifts like this last tax year, then she can give up to £6000 this tax year without anyone caring.

2c. The recipient still doesn't have to pay tax or declare these gifts: it's the responsibility of the executors to sort it out once Mother is dead.

3a. If a donor gives large sums of money away, AND THEN NEEDS RESIDENTIAL CARE funded by the state, then the local authority can look both at what money they have NOW, and what money / assets they have disposed of. In theory there is no limit to how far back they can go with these enquiries. If it appears that the donor was suddenly very generous just before needing this residential care, then (not unreasonably) the LA may decide that the donor gave the money away to avoid paying for care: this is called 'deliberate deprivation of assets'. [Actually if you're on any means-tested benefits like JSA then the same enquiries can be made.]

3b. If a donor is in good health then their generosity shouldn't cause any problems, but if they were already becoming less mobile / unwell / less 'alert' than they used to be / suffering from ongoing health problems, THEN there is a worry that the LA will say "those gifts were DDA, we won't fund the care required." This isn't a problem if the donor has left themselves plenty of cash to pay for their care; it IS a problem if they have been too generous.

3c. As before, the recipients are not liable to pay tax or declare these gifts.

Note that all of the above refers to cash: giving houses, pictures, shares etc strays into the realms of Capital Gains Tax. About which I know next to nothing.

Therefore dodo, your mother can give her 10 grandchildren £1000 each, if she has £10000 spare. If her estate is over the IHT limit, it won't be her problem anyway (sorry if that sounds callous), it will be her executors' problem. And if that still leaves her in a position where she'd have to pay for her own care (should she need it), it shouldn't be a problem, and what she does with her money is her own business.

CLAPTON

Savvy_Sue wrote: »

2a. If a donor gives large sums of money away, AND dies within 7 years, then the value of their estate for inheritance tax purposes is calculated as if they had NOT given this money away, on a sliding scale. Survive 1 year, and more of these gifts have to go into the estate 'pot'; survive 6 years and less goes in. So if the donor's total estate (including any gifts during the last 7 years) is NOT liable for IHT, then there is no tax to pay and no-one cares how much the donor gave away.

In general this is incorrect

the sliding scale does NOT apply to gifts up to the IHT level; so for a mere 10k there is no sliding scale; it's 7 years for everything or after 7 years it's nothing.

the sliding scale only applies to gifts that sum to more than IHT limit

so if you give away gifts adding up to 400,000 and the IHT allowance is 325,000 then the sliding scale applies only to the 75,000 (assuming you die within 7 years and no transfer of spouses IHT allowance of course)

This is because gifts are offset against the IHT allowance before the deceased actual estate.