Gifting money from investments, advice please

happyhero

Hi my Mother and Stepfather want to help us with the mortgage we are struggling with. They are insisting I should check all the tax side of things to avoid paying any in inheritance tax in the future or as little as possible, so I am looking into it, after much discussion. I don’t know how to say it but its sort of awkward and sad all the things we are now getting involved in, you see my mother is 76 but my step father is 88 and has heart problems, the start of Parkinsons and Dementia, and this means that the 7 year rule keeps getting mentioned, which I hate to even think about but they say it has to be considered.


So the situation is this, we have a £73,000 mortgage. My mother and Stepfather have investments in Hargreaves Lansdown of about £250,000, which I know manage the investing for them; the majority in my Stepfathers name. I understand mostly about the 7 year rule I think. I see in the accounts on HL that you can gift money to other people in the HL system.


So what I am wondering is what is to stop me gifting the money we want to get out from my Stepfathers account to my Mother account first and then gifting the whole £73,000 to my HL account before taking it out of my account or alternatively doing the same but transferring it out of my Mum’s account into her bank before transferring it to me, thus making the gift of £73,000 a gift only from my Mum so that the 7 year rule only applies to her.


I don’t think HL would interfere, but would this work, is this ok or would you suggest something totally different to achieve the same result?
Their total worth i.e. house and investments will take me into inheritance tax, ie it will come to over £650,000 as their house has shot up in value with the way property is going and I we will struggle with any 40% tax bill.


Any info or help appreciated.

Linton

happyhero wrote: »

.....
Their total worth i.e. house and investments will take me into inheritance tax, ie it will come to over £650,000 as their house has shot up in value with the way property is going and I we will struggle with any 40% tax bill.


....

You seem confused...

You wont be taken into inheritance tax, their estate will. So when they die the house, other assets and any assets disposed of within the 7 years will be added together and 40% charged to the estate on the amount over the allowance. HMRC wont come after you for the 40%, unless there is insufficient in your parents estate which appears to be very unlikely.

LHW99

Re inheritance tax - what Linton says is true, however it usually is necessary to pay at least the estimated tax before the probate is granted.
This can mean taking a loan pending settlement of the rest of the estate.

Linton

The gift is nothing to do with H-L. Your stepfather could sell some of his investments, possibly paying CGT if they arent in ISAs and give you the proceeds.

The only slight problem I see is that you will actually be doing the transactions for your step-father. To avoid any confusion or unpleasantness later I think it may be prudent that the fact that this is your step father's wish should be put in writing and signed by him beforehand, if he is capable of doing it.

I suggest you dont play "clever" games by trying to hide the transaction.

Assuming your stepfather dies first will the house actually be part of his estate? If not is there any problem anyway? If he and your mother owned the house as "joint tenants" rather than "tenants in common" I believe the house would pass to your Mother outside the estate. However this isnt my field so you should get confirmation of the situation.

CLAPTON

LHW99 wrote: »

Re inheritance tax - what Linton says is true, however it usually is necessary to pay at least the estimated tax before the probate is granted.
This can mean taking a loan pending settlement of the rest of the estate.

this is not usually the case.
if there are liquid assets, it is usually possible for these to be realised before probate so the tax can be paid

If the house is a significant sum, one can usually arrange with HMRC to delay the payment (or pay in installments) until sufficient liquidity is realised.

xylophone

Are the assets with HL in an ISA or not?

Remember that a sale or gift of assets to the value of £73,000 will otherwise have CGT implications for your stepfather / mother.

https://www.gov.uk/capital-gains-tax/overview

If they have cash, it might be as well to use as much of this as possible.

Your stepfather can gift as much cash as he wishes to his spouse - you might wish to arrange matters so that mother gifts half of the money and stepfather the other half.

Have they made cash gifts in the previous tax year? If not, they can each make you a gift of £6000 in this tax year and each make a gift of £3000 in the next tax year with no IHT implications.

With regard to IHT and the payment of any money due to HMRC, it is possible under the "direct payment scheme" for this to be paid before probate is granted.

https://www.gov.uk/inheritance-tax/overview

https://www.gov.uk/paying-inheritance-tax/overview

Many banks and building societies are members
of this scheme, which allows payment or part
payment of an IHT liability by the transfer of funds
from the deceased’s accounts directly to HMRC.

Personal representatives, wishing to use this
scheme, will firstly need to obtain an IHT
reference number using IHT form IHT422. Once
the IHT liability has been calculated, form IHT423
‘Direct Payment Scheme - Bank or building
society account’ (a schedule to the IHT400 IHT
account) must be completed, for each account
from which funds are to be transferred, with
the reference number included. Form IHT423 is
sent to the bank or building society at the same
time as the IHT 400 account and IHT421 probate
summary (form C1 for confirmation in Scotland)
are sent to HMRC. The bank or building society
should then, assuming all formalities have been
met, arrange to transfer the money to HMRC.

It is also possible to use any money held in NS&I accounts in the same way.

Do you or your wife have POA for your mother and her husband?

If not, best to arrange this while both have capacity.

https://www.gov.uk/government/collections/lasting-power-of-attorney-forms

And have they made wills/taken advice on IHT mitigation?

If not, they need to see a solicitor.

kidmugsy

happyhero wrote: »

Hi my Mother and Stepfather want to help us with the mortgage we are struggling with. They are insisting I should check all the tax side of things to avoid paying any in inheritance tax in the future or as little as possible, so I am looking into it, after much discussion. I don’t know how to say it but its sort of awkward and sad all the things we are now getting involved in, you see my mother is 76 but my step father is 88 and has heart problems, the start of Parkinsons and Dementia, and this means that the 7 year rule keeps getting mentioned, which I hate to even think about but they say it has to be considered.

Then the obvious route is that Stepfather gift, say, £70k to Mother (that's automatically free of IHT) and £6k to you (using his £3k p.a. tax-exempt amount or 14-15 and 13-14). Then she gifts £67k of it, after some suitable delay so that the transactions are not obviously linked. Of that, £6k would be exempt as explained above, and the rest subject to the 7 year rule. Alternatively, if they have surplus income they could gift it regularly to you, e.g. by quarterly standing order, so that you could pay off the mortgage gradually.

It's your duty as their child to explain everything that could go wrong with this scheme.

Vortigern

kidmugsy wrote: »

It's your duty as their child to explain everything that could go wrong with this scheme.

Such as stepfather's Parkinson's and Dementia deteriorating to the point where he needs his funds to pay for a care home.

xylophone

It would appear that the parents would have sufficient assets to fund care, even after making a substantial gift?

happyhero

Sorry it has taken me a while to digest all this stuff and try and write a sensible response but I am very grateful to you all.

Thanks everyone and yes Linton I am a little confused but trying to get to grips with this stuff. I will try to explain what I think I understand, basically my parents took me with them when they went to see a financial adviser. We all came away a bit more knowledgeable but some things he said raised more questions after we left and did a bit of talking and some things we were still not sure about.

I'm sure he said something along the lines of, anything over the £650,000 will eventually be the problem as it will be taxed and so he advised to gift any excess money early rather than leave it as part of the inheritance or spend it. The bit above £650,000 will be heavily depleted by tax and my parents would be better of doing something with it that gives them pleasure.

They told him they wanted to pay off my mortgage for a start which he said great to but if anything happened to one or both of my parents within 7 years then that money would be counted as part of the inheritance and not part of the bit over £650,000, i.e. if they gift the £73,000 to me and both survive past 7 years then they have managed to reduce the taxable pot nearer to the £650,000 (they are about currently about£150,000 over) but if one of them does not survive the 7 years then that amount that has been gifted will be brought back into the persons £350,000 so that if one gave £35,000 that would effectively be taxed at the end, I hope I am making sense here, and I cant help thinking how cold this all sounds, but I am being pressed to move on to find solutions.

They told him they would wanted to avoid having this problem with the 7 year rule as they both worry about how long my stepfather will manage for with his problems.
He said if something happened to my stepfather (assuming he gifted £35,000) in the 7 years, although his allowance would pass to my mother making hers £650,000 normally, in this situation he could only pass £290,000 onto her making her total allowance £615,000 leaving the bit above £615,000 taxable, ie the taxable bit will have been increased so that the gifting solved nothing on his side.

Hence my question about trying to gift everything through my mother.

He said the £615,000 would stay like this, i.e. it would not revert back to £650,000 even after 7 years had passed, my stepfather would have been seen to have passed over to me £35,000 and £290,000 making his £325,000 total allowance up.

I think I have got the paragraph above right more or less and that this is the important part, please comment/put me straight etc, on this.

xylophone

Is the house owned as joint tenants or tenants-in-common?

What is the value of the house?

What is the value of cash/assets owned solely by mother?

What is the value of cash/assets owned solely by father?

Are the investments held in ISA?

If not, do you understand the CGT implications of a gift?