Parents giving £10k, but how to avoid heavy taxes

Aconcagua

Hi All,


My dad would like to give me the 10K deposit we need to proceed with our mortgage, but I am aware that inheritance tax plays a big part in this.


I am aware that he can give me a £3000 tax free gift this year, and as he didn't give anyone any money last year, he can add an additional £3000 to that making it up to £6k.


However, if he also gives us the other £4k, is he liable for 40% inheritance tax on it?


Is there any way he can give us the full 10k without being hammered?


Many thanks

Mojisola

Aconcagua wrote: »

My dad would like to give me the 10K deposit we need to proceed with our mortgage, but I am aware that inheritance tax plays a big part in this.

He would need to have an estate over £325,000 (or £650,000 if able to use the spouse's exemption) and die within seven years of giving you the gift before IHT becomes an issue.

ShAnE

My understanding is if he has an estate of £314,000 and gives you £10,000 you wouldn't have to pay any IHT tax if the worst happened within 7 years.

However if his estate is worth £316,000 then your £10,000 would push him over the limit and you would have to pay 40% on that £1,000.

I'm sure someone will come along and correct me if i'm wrong.

Aconcagua

I believe his estate is bigger than £325,000, but we haven't been on the best terms for a while, so that information wouldn't be available to me. I would have to assume that it is the case.

Mojisola

Aconcagua wrote: »

I believe his estate is bigger than £325,000, but we haven't been on the best terms for a while, so that information wouldn't be available to me. I would have to assume that it is the case.

If he is offering you the gift and there may only be a possibility of a tax to be paid from his estate after he dies, why are you worrying about it?

Presumably, he understands about IHT.

Aconcagua

Because he is already paying £3000 on top of the £10,000 to release the amount from his pension early, and he is worried that by giving it to me, there will be an additional bill he has to pay.


Are you saying IHT wouldn't come into force until he died anyway?


If so, would it simply come out of his estate?


the point I'm trying to make is; are there any financial consequences to him right now if he gives me £10,000 (i.e does he have to pay anything else right now for doing that)?


... and do I get penalized for it being given to me in any way (i.e HMRC treating it as undeclared revenue or me suddenly facing a levy down the line for suddenly having £10,000 in my account).


first time buyer, so am trying to cross every T

audigex

There's no income tax to be paid by you: you're just receiving a gift.

Potentially if he died within 7 years it would become repayable out of his estate - ie 4k would be owed to the tax man, then the remainder would be divided according to his will.

If you're the sole beneficiary it makes very little difference: you would have got the 10k when he died anyway and paid 40% tax on it at the time. If he doesn't die in the next 7 years it makes no difference at all.

If you aren't the sole beneficiary then potentially you're benefiting a little because you're getting it tax free now and then the tax comes out of the estate (ie every beneficiary ends up paying some of the tax) - he could re-write the will slightly to account for this if he cares to.

Mojisola

Aconcagua wrote: »

Are you saying IHT wouldn't come into force until he died anyway?

If so, would it simply come out of his estate?

Inheritance tax only comes into play after someone dies and only then if the estate is big enough.

... and do I get penalized for it being given to me in any way (i.e HMRC treating it as undeclared revenue or me suddenly facing a levy down the line for suddenly having £10,000 in my account).

There is no gift tax in the UK. Your father will have to provide a letter for the mortgage company to say that the money is a gift to you.

Aconcagua

Brilliant! thank you