Income tax payable on gifts from will?

KD

If someone leaves you money from their will, do the Inland Revenue consider this to be 'income' you have received and therefore potentially liable to be charged income tax on it?


My head is spinning with all the Inheritance tax stuff on the forum... but I just can't seem to find this anywhere.

MarkyMarkD

No, it's not income, and it's not subject to income tax.

Not surprisingly, it's subject to inheritance tax - but that's a tax on the value of the estate, not the value received by each individual recipient, and may not be due at all as the threshold is high.

System

By the time you receive the bequest the executors should already have dealt with any Inheritance tax that may have been due from the estate. The IR usually get their cut first .
The money you receive is not taxable but if you invest it any interest you receive outside an ISA wrapper will be taxable at whatever rate of tax you pay ie 20% or 40%

KD

My dad died last year and he had a very simplistic will leaving everything to my mum. His estate was not enough to reach IHT limit. I'm worried though that we are in the position now where my mum has all the assets and that she'll be hovering around the thresholds.

My mum/dad wanted the grandchildren to 'get' something when they died but I think I may have missed a legitimate trick here. My mum gave each of the 4 grandchildren £5K from my dad's ISA, when the money was released after gaining probate. We did this on the understanding that as the assets had all been given to my mum that she'd gifted the money and would have to use the seven year qualifying rule for gifts. As my mum is 73 we're hedging our bets a bit.

My brother also has some problems and my mum has given him £35K to put a deposit on a house, as he has split from his wife.

I thought I'd tied up my dad's will and got everything settled. The solicitor my parents dealt with didn't talk about the impact of IHT and probably being in Scotland, property prices haven't 'shoved' people into the IHT bracket; therefore the solicitors don't seem so clued up.

Is there a possibility to do a deed of variation on my dad's will to bequeath the grandkids their money and my brother his. Previously, my dad never made any larger gifts, although they made use of the £3K a year to help me out. Also,what sort of cost could I expect to pay to do a deed of variation?

Appreciate your help- as the 'professional' we dealt with didn't even open the discussion. Even when we went back to them to check that my mum's will was in order, it was never mentioned, apart from the fact that there was no IHT between spouses.

It's stressing me out a bit that I've not dealt with the situation as tax efficiently as possible. It's also stressing me out that if my mum doesn't live for 7 years, this money will all travel back into her estate and could potentially drag it into IHT bracket.

System

Just bumping this up to see if anyone with more knowledge can help KD.

Cardew

KD wrote:

My dad died last year and he had a very simplistic will leaving everything to my mum. His estate was not enough to reach IHT limit. I'm worried though that we are in the position now where my mum has all the assets and that she'll be hovering around the thresholds.

My mum/dad wanted the grandchildren to 'get' something when they died but I think I may have missed a legitimate trick here. My mum gave each of the 4 grandchildren £5K from my dad's ISA, when the money was released after gaining probate. We did this on the understanding that as the assets had all been given to my mum that she'd gifted the money and would have to use the seven year qualifying rule for gifts. As my mum is 73 we're hedging our bets a bit.

My brother also has some problems and my mum has given him £35K to put a deposit on a house, as he has split from his wife.

I thought I'd tied up my dad's will and got everything settled. The solicitor my parents dealt with didn't talk about the impact of IHT and probably being in Scotland, property prices haven't 'shoved' people into the IHT bracket; therefore the solicitors don't seem so clued up.

Is there a possibility to do a deed of variation on my dad's will to bequeath the grandkids their money and my brother his. Previously, my dad never made any larger gifts, although they made use of the £3K a year to help me out. Also,what sort of cost could I expect to pay to do a deed of variation?

Appreciate your help- as the 'professional' we dealt with didn't even open the discussion. Even when we went back to them to check that my mum's will was in order, it was never mentioned, apart from the fact that there was no IHT between spouses.

It's stressing me out a bit that I've not dealt with the situation as tax efficiently as possible. It's also stressing me out that if my mum doesn't live for 7 years, this money will all travel back into her estate and could potentially drag it into IHT bracket.

It is(would have been?) simple enough to get a deed of variation to a will, especially as your mother was the sole beneficiary. My brothers and I(the sole beneficiaries) did this for my mother's will and it cost only a few pounds for a minor change in the will.

However I don't know how far back you can go with a deed of variation and you will need to check. Also not sure if Scotland has different regulations to England. A phone call to a solicitor would get the answers.

If your mother doesn't live for 7 years not all the money goes back to her estate as it is on a sliding scale I believe.

MarkyMarkD

I believe that it's 2 years so it's not too late. Definitely obtain professional advice in this situation - avoiding the useless solicitor who didn't even bother to mention it the first time.

KD

Thanks guys for your suggestions/ help - I'm learning as I go along and so after re- reading Martin's article and the IHT thread (in it's entirety-a marathon to say the least), different ideas have been coming forward to explore. I think because my knowledge is so fragmented I'm getting muddled.

I wanted to go back to the solicitors and instruct them definatively what needed to be done - as they don't seem very clued up.

I think I'll try a specialist tax advisor as I think relieving my stress levels will be worth the fees!

Paul_Varjak

KD:

Hope you manage to get it all sorted out. I know hat it is like, trying to comprehend all the rules and regulations, especially at a time when you would rather not having to deal with it all.

Now that you are learning, it may help your kids' future if you can explain to them what is happening. I certainly learnt a lot from my mother and this did help me deal with her estate.

It is something that you do not want to get wrong though, as you have little chance to 'learn by your mistakes'. It is good that you have decided to seek proper advice. Let us know how you get on.