20k implications re tax and what to do with this

DynamiteGirl81

Hi

Anyway a bit in shock been given 20k today by one of our parents, they had been investing money in an insurance policy and wanted to give us part of their payout as a gift. Think, they think they are better giving it to us now than in years to come. We need to move house at some point, this money means we can probably do this sooner.

Anyway what tax implications does this have? Bank did not seem to know ...well cashiers did not anyway lol. I put the money in my regular account for over the weekend, so we can have a think about what to do with it.

We bank with Halifax normally. Anyway what are the options to do with this money probably do not want to invest long term. We have some other savings about 5.5k in ISA's and 1k in online saving account. We also have about 83k mortgage not sure if we sell we will get this for house, we are overpaying every month.

Anyway ask anything you need to not really sure what I need to write

Thanks

caeler

No tax on the gift but you'll pay tax on the interest (unless part of it is in an ISA or you have low earnings). Pop it in the highest interest account you can once your ISA is maxed out.

gadgetmind

There will be inheritance tax implications if said parent(s) don't survive for the next seven years, which is often why parents prefer to give gifts as early as possible.

As I'm sure you know, savings accounts aren't paying much interest right now, but you don't have much in the way of options given your circumstances.

About the best advice anyone can give is not to ask the bank for advice!

DynamiteGirl81

Was looking on inland revenue site but said only gifts excempt ar to certain beneficiaries such as husband wife or cival partner, does this mean for the person giving the gift not the person receiving???

xylophone

This might eventually have IHT implications for your parents' estates - see
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm - your parents should keep a record of the gift with their wills.
You mention your ISAs - presumably you will now top up each of your current year's subscription to the maximum?

Would you wish to use the balance to pay down your mortgage (assuming that the interest rate you are paying is greater than what you would receive after tax and that there is no financial penalty for so doing)?

DynamiteGirl81

Yea am thinking ISA do not think either of us have used any of allowance for this year. Well I certainly have not and my husband has not used much. We are about to come out of our fixed rate mortgage deal, which means, I think we can pay more than 10% of outstanding balance without penalty obviously would need to check this out. Our mortgage is moving on to SVR 5.99% with Accord,which I know is ridiculous. Am reluctant to tie into another deal with this company, as if we move we would be tied to there rates at that time.

Lol at do not ask bank but who do you ask, suppose thats why I posted.

Thanks all for help

xylophone

http://www.moneysupermarket.com/savings/cash-isas/?gclid=CLbO9Yy04rACFUdlfAodFx5A1w&source=GOO-131774AD&p=0&keywords=best+cash+isaExact&ef_id=zg29z9B6MjYAADLkFkwAAAAP:20120622174939:s - look for the best cash isa rate you can find.

Presumably you have researched moving the mortgage to another provider?

http://www.moneysupermarket.com/mortgages/

DynamiteGirl81

Yea we looked couple months ago obviously we did not have this money then, think can get a better rate with Accord if pay some money in but fixing puts me off if we move. We have approximately 83k left on mortgage property valued with them at 88950 based on Nationwide and Halifax price indicies. Reluctant to have house surveyed at moment as have some issues with damp which I want to sort as I know this will put value down... second builder this week has not shown up do not get me started grrrr lol.


With all this going on with Ulster Bank here would hardly know where to put your money or mortgage. Thanks again

kidmugsy

Ask each of your parents to write you a letter, saying that they have gifted you £10k, of which £3k uses their Inheritance Tax (IHT) exemption for 2012-3 and a further £3k uses the IHT exemption for 2011-2. (They are allowed to carry back exemption for one tax year.)
You and they should each keep a copy of this letter for 7 years so that it can be shown to the taxman if one of your parents should die during that time. (After 7 years the gifts are exempt from Inheritance Tax anyway.) You could even ask each of them to write to your spouse saying that they've given him a gift of £250 in 2012-3, which is exempt from IHT.

This way, whatever happens you've got £12,500 free from all risk of IHT, leaving a maximum of £7500 exposed.

P.S. This comment is based on the assumption that this gift from your parents is the only one they've made in the last two tax years.

DynamiteGirl81

Worst case scenario and I do get taxed on this money how much would it be, it is a gift, just really do not want to cause parents stress asking for letters if you know what I mean. Letter is a good idea but really think it would stress them

evenasus

The inheritance tax threshold is £325,000 per person.

Do either of your parents have savings/assets of this value?