Inheritance tax confusion - parents are abroad

susan87

Here comes numerous questions - so sorry about the hassle!

I only found out yesterday that a gift tax effectively exists as part of inheritance tax, so I am trying to learn more about this, especially since my dad is getting quite poorly and we are all trying to sort out inheritance etc issues given it has never been looked at before.

First of all, my parents live abroad and always have (they are not UK citizens nor have they ever been residents). My understanding of this is that obviously no UK inheritance tax applies then when they die.

1. What about, however, for cash gifts they have given me for the last 7 years? From what I understand, that money is effectively part of their estate (if they die within the 7 year rule), so does that mean no gift tax applies at all on anything they have sent in the past 7 years even if they die, or does that cash - now being in the UK - count as a 'UK domiciled asset' that tax is assessed on?

2. If the cash gifts are indeed taxed in the UK, I guess then gifts to other people in other places (that they have given - I have no idea) don't count at all, and I effectively have a 325k limit, 3k allowance, etc. all to myself given that only the money to me would fall under UK tax rules? (For myself, I won't come anywhere near that figure, but I don't know my parents' money dealings elsewhere and am unlikely to discover this, as I certainly wouldn't manage the estate. They helped with our mortgage downpayment so that did bump up the gifts quite a bit.)

3. If the money is from an income my dad earns and goes into his account, if he dies, would the gifts all count toward a 325k limit for him alone and tax would be assessed, or can that money be considered coming jointly from both my parents, regardless of the account/income's name, and thus it is only relevant if it hits 650k and my mum dies after my dad (with the 7 years being taken into account then the 7 years before my mum's death)? If it is a no to the latter, if my mum's name gets added to that account, would it make any difference then?

A few further quick questions, but only relevant if this money is taxable:

4. The money is sent regularly each month. It says regular money to savings is tax-free, but what if it goes into my normal account and I then transfer some of it to my savings? Would that be tax-free, or would it need to go directly to my savings account? (If it is the latter, I can ask them to start doing that now for part of it.)

5. During the 3 years-ish that I was a student, I guess everything they sent from that particular income would be tax free given that support for children in full time education is tax free? The money was obviously used to support me and pay my bills (but I was able to save a bit too).

Thanks so much for all the help. Hoping to not have a repeat of last night's sleepless night!

System

I don't know a lot but the one thing that jumps out at me is that if they are not resident and have never lived in the Uk then the 7 year rule about gifts etc which is purely UK would not apply.

Your first port of call should really be the inheritance rules of the country they reside in and how they treat gifts. You appear to be trying to apply UK rules when probably a lot do not apply

TBH all that will be seen from the UK side is that the regular gifts have stopped.

booksurr

1. irrelevant - 7 year rules applies to UK IHT. Father is not and never has been liable to UK IHT
2. n/a by virtue of answer 1.
3. n/a by virtue of answer 1.

4 & 5. you are confusing yourself with misunderstood issues that are in any case utterly irrelevant

let us hope that your sleepless nights are caused by concern over the heathlt oif your father not the thought that your inheritance may not be as big as you want it to be

xylophone

let us hope that your sleepless nights are caused by concern over the heathlt oif your father not the thought that your inheritance may not be as big as you want it to be

The OP may well be worrying both over her father's health and about any tax bill for which she might be liable?

From the information given, she has no worries about UK tax on money that her never uk resident parents have given her, but her parents may need to look into the situation concerning IHT/gift tax in their country of residence.

http://www.ey.com/Publication/vwLUAssets/2013-international-estate-and-inheritance-tax-guide/$FILE/2013-international-estate-and-inheritance-tax-guide.pdf may be worth a look.

susan87

First of all - of course my dad's health is the biggest concern by far and is certainly on my mind a lot. However, I did have a bit of panic suddenly discovering that I might owe 40% on money given years ago and that is since long gone to pay for a mortgage deposit etc. I don't really care at all about whether or not I get an inheritance down the line (and I hope that this topic isn't touched for years to come!), it was more the possibility of having to pay loads of money that I didn't have anymore.

I did figure when I first came across it all that it'd all be irrelevant to the UK (and of course we do know it'll have to go through the local inheritance tax rules there), but the main reason for the panic was that I Googled it and several threads came up elsewhere which said the exact opposite - not for the inheritance as a whole but rather for the cash gifts side of things, saying the UK takes 'ownership' of them IHT tax-wise when they get deposited into a UK bank and thus the gift tax side of the IHT would apply. I am glad this doesn't seem to be the case!

Thanks for all the help.

Cook_County

There are doubtless tax or exchange controls in the jurisdiction where dad is resident and/or domiciled; which are probably far more concerning than UK IHT.