Inheritance Tax questions

bmurphy

My OH's parents are due to receive a sum (poss 20k+) from a neighbour who passed away a year ago.
The neighbour had no family so after a few bills, charities are looked after the remainder of the neighbours funds will go to my OH's parents.

As the case is dragging on the solicitor has offered to make a payment of 10k to my in-laws.

The solicitor suggested making the cheque payable to my OH as not to interfer with benefits. The full amout of the cheque (after being lodged)is being split in 4 between 3 children and the parents.
What tax implications would this have on my OH?
Would she have to declare this gift/earnings?

Another factor is that we are getting married in 2 months time, i know there are one off gifts from parents etc, will this come into effect now.

Any help will be appreciated

Willman_Rodders

This reply is a little outside my area of specialism (I am a will writer and was an IFA) so whilst not 100% sure I am confident the information is correct and I notice no one has responded and we are 8 days into the post so....

The gift from your parents in law's neighbour should be received with all the inherance tax liability paid from the residue of the neighbour's estate. So you should have no further tax liability upon the gift. You do not declare it as income. Do keep all documentation through from the solicitor in case you ever have a tax inspection - this will be the evidence of the transaction.

With the cheque first being paid into your OH's bank account there are IHT implications.

Your question does not explain whether the original will instructs that the payment is to be 1 share to the parents, 1 share to child 1, 1 share to child 2 etc. If this is the case then only £5,000 will go to your Parents-in-law under the terms of the original will. If they were to die in the short term then quick succession relief may be available to reduce the IHT payable on this gift.The evidence to support the quick succession relief would be the letter from the solicitor enclosing the cheque to your OH in the first case; so keep that letter safe.

If we assume that the whole payment went to your OH parents-in-law who then decided they wanted to split the 3 shares between the children then the gifts to your OH would be regarded as a potentially exempt transfer and if the OH parents died within 7 years of making these distribution payments Customs and Revenue could argue that this was a potentially exempt transfer and should therefore be included within the parent's estate for the IHT calculations. If the parent's estate cannot meet this liability then your OH would be liable.

However you would then use your allowances. Each person has a £3,000 a year allowance to an individual, (and you can use last years as well if this remains unused) i.e. a total of £6,000. Further, £5,000 is allowed by a parent to a child in consideration of marriage - though the payment has to be made BEFORE the marriage. So, your OH parents could gift to your OH £11,000 before incuring an IHT liability.