inheritence tax early gift question

happyhero

I have a question about some money that my mother wants to give me. I have a wife and 2 young kids and we have suffered a few setbacks so that we are now left struggling to pay all the bills. I was settled with the idea we would try to muddle through but my mother is insistant that she wants to help us with a lump sum, she says it will be to reduce our mortgage and therefore the monthly payments. I'm not sure of the exact amount but she has mentioned 20,000.

Both my mother and I had a rough idea about there being a 3,000 limit you could give as a gift each year so I looked on the HMRC site.

Although the HMRC site does mention a 3,000/year limit it also seems to say that you can give as much as you like as long as the giver lives for 7 years after the date that they give. This information is given under the inheritence section under gifts


I think I am reading this right but to me this implies that the 3,000 limit is almost meaningless and not to be worried about since as long as you any give big gifts when you are reasonably young and live for 7 years after there is no worry about the amount as there is no tax liability, am I understanding this correctly?

Any help or info appreciated.

uknick

£3k limit is completely exempt of IHT, and so is the possible carry forward of the allowance to the next year, i.e. you could get £6k in one year IHT free.

But, yes you are right if the giver lives longer than 7 years there is no IHT tax to pay on a larger gift.

However, without wishing to be a harbinger of doom, remember people don't just die of old age. This is what catches some people out.

Mojisola

An estate has to be over £325,000 before any inheritance is paid - twice that if there is any carry-over from a spouse.

If her estate isn't going to over that amount, there's nothing to worry about.

If her estate will be liable for IHT, the gift to you will be taken into account but the tax will be paid by the estate, not you personally.

If there are several beneficiaries, that could lead to arguments.

If your mother doesn't have a lot of money, she needs to consider deprivation of assets issues before she gives money away.

thenudeone

There is no tax on gifts in the UK, of any amount.

The £3k "limit" only comes into to play if the donor dies with 7 years, in which case a proportion of the value of gifts given within the 7 years up to death are added back (on a sliding scale) for inheritance tax purposes. This is to stop people from avoiding Inheritance tax by giving everything away shortly before their death.

Gifts of up to £3k a year are ignored, along with various other exemptions which aren't relevant here.

So the worst case resulting from the gift is that your mother's estate will pay the same inheritance tax as it would have, had the gift not taken place. The best result is that it has avoided some IHT.

The second last comment of the original post sums it up very well

[Deleted User]

Hi,

uknick wrote: »

£3k limit is completely exempt of IHT, and so is the possible carry forward of the allowance to the next year, i.e. you could get £6k in one year IHT free.

so really you can give £9K in a calendar year, if you straddle the financial year, £3K for this year, £3K from last year (not already used) and £3K after 5th April.


So, is it possible to give £3K to a, b, and c,


and what are the implications for the recipient?


Does it have to be notified to HMRC, or anybody?


How is it recorded as a gift?

Thanks.

CLAPTON

[Deleted User] wrote:

Hi,



so really you can give £9K in a calendar year, if you straddle the financial year, £3K for this year, £3K from last year (not already used) and £3K after 5th April.


So, is it possible to give £3K to a, b, and c,


and what are the implications for the recipient?


Does it have to be notified to HMRC, or anybody?


How is it recorded as a gift?

Thanks.

it is indeed so, that you can carry the unused 3k allowance forward into the next tax year
so can give 6k the first year and then another 3k after the 6th April
a couple of course could both do this so total could be 12k in the first year and 6k more after 6th april so quickly giving 18k


you can give separate gifts to as many different people up to 250 each
but otherwise the total gifts are limited to 3k per annum

there are no consequences to the recipient

and you don't have to tell HMRC

rochja

£3K is total value. However, tthere is another provision under which you can receive parental assistance without them incurring an IHT liability from the gifts:
Regular gifts or payments that are part of your normal expenditure
Any regular gifts you make out of your after-tax income, not including your capital, are exempt from Inheritance Tax. These gifts will only qualify if you have enough income left after making them to maintain your normal lifestyle.
These include:
monthly or other regular payments to someone
regular gifts for Christmas and birthdays, or wedding/civil partnership anniversaries
regular premiums on a life insurance policy - for you or someone else

CLAPTON

thenudeone wrote: »

The £3k "limit" only comes into to play if the donor dies with 7 years, in which case a proportion of the value of gifts given within the 7 years up to death are added back (on a sliding scale) for inheritance tax purposes. This is to stop people from avoiding Inheritance tax by giving everything away shortly before their death.

there is no 'sliding scale' on gifts totalling under 325,000

thenudeone

CLAPTON wrote: »

there is no 'sliding scale' on gifts totalling under 325,000

Surely you mean:

there is no 'sliding scale' if the value of the estate plus gifts, totals under 325,000

CLAPTON

thenudeone wrote: »

Surely you mean:

there is no 'sliding scale' if the value of the estate plus gifts, totals under 325,000

no, I mean there is no sliding scale if the value of the gifts (PETs) in the 7 years before death are under 325,000.;

this is because the IHT allowance is used to 'offset' the PET gifts first; so if they are below 325,000 there is nothing to apply the sliding scale to.

Hitting

Is the 7year period based on Calender date or tax year date?
Eg, If I make a gift on 1st April 2014 and I die on 10th April 2020,is this period 6years or 7years?, for PET purposes?