Advice on giving cash to family

JulieH

hi all, i'm after some advice regarding giving a member of your family cash.

basically, my parents have split up and my dad wants to give a lump sum to myself and my brother. however, we're not sure as to whether tax would be payable or not? i've searched the internet as i'm aware the laws changed last year, but to be honest it's all in jargon to me!

does anyone have any advice, or a good website that explains it simply?

many thanks!

oldwiring

The HMRC site has a lot of info. Some gifts are exempt from the clutches. Scroll down to "Exempt Gifts" for a list

CLAPTON

your father (or anyone else for that matter ) can give you money without any tax being paid either by you or him.

however, if he should die within 7 years and his total estate including the money he has given away in the previous 7 year is more than the Inheritance tax allowance (currently 300,00) then tax will be payable on the excess over 300,000.
but then again if he doesn't give it away then his estate would be taxed anyway.

Willman_Rodders

Hi JulieH,

Just to add to both Clapton and Oldwiring's posts ...

If your dad gives you, and your brother, and anyone else cash (or indeed any gift) then this/these gift(s) will be added back into his estate at the time of his death if he dies within 7 years of making the gift. If the then calculated size of his estate is greater than £300,000 (or wharever the nil rate band (NRB) is at the time of his death) inheritance tax will be payable.

Inheritance tax is charged presently at 40% on the excess over the NRB. Usually where IHT is payable on previously made gifts (which are known technically as 'potentially exempt transfers') the deceased's will will stipulate that the tax should be paid from their estate, rather than by the beneficiary of the gift.

Taper relief may be available; please advise if the gift is going to be sizeable i.e. in excess of £300,000 - and we can [try to] explain taper relief.

As 'oldwiring' points out there are exemptions. The most commonly used [after the interspousal transfer] is the £3,000 per year allowance which allows a person to give away £3,000 in total,(e.g. £1500 to you, £1500 to your brother = £3,000 - so no tax payable). If this allowance was not used last year then it can be used this - thus giving an opportunity to gift away £6,000 (i.e. Last years unused allowance of £3,000, and this tax years allowance £3,000)

Often, where parents have amounts in the region of £10,000 to give away they will make the gifts in three payments - £6,000 now (using last years unused allwance and this years allowance in full), then £3,000 next year (thus using next years allowance in full) and then in 2 years time the final £1,000. Because all of these transfers were made using the IHT exemption allowances there is no future IHT liability, irrespective of if the parent dies within 7 years.

Hope the above helps.

Please note that [unusually] Clapton's earlier post has a misprint. The post refers to threshold limits of £300,00; these references should read £300,000.

missmoon

There is a new piece of legislation that came in over the last few years.

Basically, if your dad gives you some cash, and you invest it in an asset he also benefits from, an amount of the benefit is charged to income tax.

Another loophole closed by the government!

JulieH

Thanks for all of your answers.

He's planning on us having £20,000 each. He's given us £5000 each so far but wasn't sure what to do with the rest with regards to tax.

So it looks like he can just give it to us and not worry about tax unless he dies within 7 years? If he does then any tax payable will be paid by his estate (not us) and that's only if his estate is worth over £300,000? Hopefully I've got that right!

dunstonh

Basically, if your dad gives you some cash, and you invest it in an asset he also benefits from, an amount of the benefit is charged to income tax.

It's been like that for a long time. The recent charges affected loan trusts etc which were a way of trying to get round the gift with reservation.

jamesd

JulieH, that's right. If the estate is not over 300,000 then inheritance doesn't apply at all, so no restrictions.

If it does apply then his will should say that the tax on any gifts given in the previous seven years should be paid by the estate.

If his income now is ample to live on without affecting his lifestyle and inheritance tax will apply he can make regular gifts to the two of you out of his normal income and that is also exempt from inheritance tax. The limit here is whatever part of the income he can give away without affecting his lifestyle. For example, he might set up a standing order to pay each of you 125 a month and also give each of you 1500 each year to use the gift exemption and the total over 7 years would be about 20,000 each.

I don't know if he could fund this by buying an annuity for say five years using a lump sum today, with a guarantee that the payments will be made if he dies, payments to go to you in this case. Annuities can do it, I just don't know what the inheritance tax treatment is.