Mother wants to give me 50k

inversions

Not sure where to put this but the situ is that my mother is well offish. Doesn't spend what she has coming in, owns own house etc. Has 25k in her current account that I can't get her to do anything with, and it keeps going up.

Anyway, she just inherited 50k from a cousin and has said I can have it for a deposit for a house. Although I'll need more than that around here.

I don't know how this kind of thing works. Can she just ask the solicitor to pay the money to me instead? Will they just pay the money into her account and she can write me a cheque? I'm self employed, will it effect me tax? Any advice appreciated.

atush

She can ask for a Deed of variation, giving the money to you direct. This will take it out of her estate should the worst happen like falling under the no2 bus. If she writes you a check, she has to live for another 7 years to take it out of her estate for IHT.

AS I am going to assume her estate will be over 2x the IHt threshold? As I assume your father has passed so there are 2 exemptions?

lalman

The rules used to be (when I studied them... (well I hope they were!)) you could give 3k without any implications, and carry that allowance forward for just 1 year... so in effect 6k unless your mum has given to other people in the last year.

Then the implications are Inheritance tax - So when I studied you have a 325k life time limit... and as time goes on (7 years total) this would be tapered so less of the money she would give you is part of inheritance tax allowance.


Beyond the 325k (if she isn't married) is taxed at 40%.

Can someone else please just clarify that I am correct as rules might have changed + use the correct terms.

inversions

Thanks folks.

I don't think her estate as a whole is worth more than about 175k (before the inheritance) as the house is only small and in a poor area buts its okay. A little village in Somerset. I think she paid 90k for it before the crash so......

No father around, never met him. Step dad dead. No other siblings. No other gifts given.

bowlhead99

You don't pay tax on receiving a gift.

Inheritance tax only relevant if your mum's estate is big enough when she passes. When (sorry if...) she dies, they would compare her estate to her £300k-odd limit (which goes up over time) ; in doing so, in addition to her actual assets like house and cash stash, they could include a part of the value of the £50k gift she was making today - although they taper it down depending how long has past, and anything after 7 years is valued at £nil. At that point after doing the calculation there may be some inheritance tax to pay on the overall amount against the overall limit, and the bill would be settled out of the assets that are left in her estate (house and cash stash).

As Atush mentioned, you can potentially get your mum to sign a deed of variation which varies the rules of the cousin's estate and means that what would have been her money from the cousin's will would officially go to you instead.

That way, if/when your mother dies in the next 7 years, there is no risk that this is seen as a 'gift' from her to you that needs to be added back into her estate to be tapered.

It sounds like inheritance tax on your mum's estate is not going to be an issue, particularly in the unfortunate situation where she falls under a bus tomorrow. If she fell under a bus in five years time and by some miracle the house was worth 500k, then you would be paying inheritance tax on the estate at that point and you wouldn't really want to pay even more inheritance tax because of them counting part of this generous gift too.

So a deed of variation could be a couple of hundred quid well spent with a solicitor. You are well over the limit for the annual 'gift allowance' (which could make small gifts invisible for inheritance tax), so effectively your choice is to ignore the chance of inheritance tax happening or ask the solicitor about formally 'diverting' the proceeds of the will to you instead of becoming hers and then her gifting them on.

inversions

Thanks, so, however I end up with the money, as there is no chance of inheritance tax as her estate is not worth anything like 300k it will probably be a cheque. Will it effect my annual SA? I'm self employed but do my own accounts although I plan to employ an accountant from next month.

le_loup

Gifts are NOT taxable. You do not show it on your SA.

bowlhead99

No as mentioned there is no tax on receiving gifts. It is not income - you haven't "earned it" from employment or as a return on investments etc.

OK I guess you have earned it by being a loving child but that isn't paid work, the taxman does not want to know.

le_loup

atush wrote: »

If she writes you a check

C'mon, you've been in these parts long enough!!!

butterflymum

See:

http://www.saga.co.uk/saga-magazine/2014/january/money-clinic-can-you-hand-on-inherited-money-to-someone-else.aspx

and in particular:

The other thing to be aware of is your mother’s entitlement to benefits and liability for contributions to care home fees. If she was ever assessed for either, the existence of the deed could be evidence of ‘deliberate deprivation of assets’, meaning the variation could be ignored and your mother assessed as if she had actually received the money.

which I believe would also be the situation if your mum received the inheritance in her name, and gifted it to you whilst she was still living (perhaps another MSEr more knowledgeable on the subject could clarify if this is indeed the case).

bowlhead99

You're right that giving the money away when you know the lack of assets will help you avoid means tested benefits, will potentially just result in you being assessed as if you still have the assets.

But whether you formally choose not to receive the assets (variation of the initial will) or you receive them and physically give them away in two transactions - doesn't change the spirit of the rules. If it is relevant it is relevant to both ways of doing it.

There is of course no problem giving away money that you think you don't need and keeping your £25k (and growing) cash pot to provide for yourself. It's only if you are deliberately depriving yourself to scam the government or local authority that you get into trouble.