gifting money

borrowash

I read this on another site
"If you want to lend a financial hand to your son or daughter, then you might want to consider opting to pay them a regular amount each month rather than gifting a lump sum.
This is because regular payments are excluded from inheritance tax liability, as long as they come from your income (not your savings) and don't affect your lifestyle i.e. you do not have to sell your home to fund the payments"
Is this true, and if so can you give all your income to your children and live off savings, effectively giving them an inheritance before you die without any repercussions from the tax man?

Biggles

Not exactly, it depends on amount, frequency etc. This is the official word from gov.uk: https://www.gov.uk/inheritance-tax/gifts

alanq

borrowash wrote: »

...can you give all your income to your children and live off savings, effectively giving them an inheritance before you die without any repercussions from the tax man?

No.
"A transfer is exempt if it forms part of the normal expenditure out of the transferor’s income, irrespective of the size of the transfer. In order to qualify for this exemption the transferor must show that the expenditure is normal and habitual, that it is made out of income (ie is not a grant of, or out of, a capital asset), and that the transfer does not leave the transferor insufficient income to maintain his or her usual standard of living."
https://www.gov.uk/guidance/inheritance-tax-manual/section-6-exemption See 6.19

As well as Inheritance Tax considerations there is the potential issue of Deliberate Deprivation of Assets / Income should means tested benefits be required some time later.
http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS40_Deprivation_of_assets_in_social_care_fcs.pdf

borrowash

Thank you for the replies. So if the person making the payment from their income had sufficient
savings to enable them to pay their normal living costs from those savings that would still be considered as deprivation of assets? If so this seems to contradict the quote I put in my post, which I got from a site called Money.co.uk by the way.

alanq

Your initial post was about Inheritance Tax. Deprivation of Assets as an issue when claiming means tested benefits is a separate issue.

For Inheritance Tax I don't think that there is a contradiction. If I understand correctly...

If you have an income of £2000 and you make regular payments of £500 to someone and live comfortably on £1500 without raiding your savings that's OK. If you have an income of £2000 and make regular payments of £2000 to someone while drawing £1500 a month from savings to live on that's not OK.

Keep_pedalling

Exemption with gifts from income is out for most people as they simply don't have a level of income that falls below your total expenditure. For instance, You can't claim it if at the same time as gift from income you withdraw money from your savings for things like holidays or a new car.

We have gifted lump sums to our children which will fall out of our estate after 7 years, but we have also taking out a fairly cheap second death term insurance policy, that will cover the IHT on those gifts should both of us not live that long.

Make sure you use up you £3000 annual allowance, if your kids are getting married the each parent can also make an exempt gift of £5000 in contemplation of marrage.

Just as important however spend a good chunk of it on yourselves, you are worth the odd long haul business class flight, or a holiday in that nice villa with its own swimming pool in the south of France.

Once the primary residence nil rate band has been rolled out in a couple of years , couples will be able to leave up to £1M tax free to their children, so if you are in that territory I think you can afford to be generous to yourselves and your children, and it's much more fun disposing of some of your wealth built up in your lifetime when you are alive rather than leaving it till after the grim reaper has paid you a call.

pepper77_2

I have lived on savings for more than a decade, very little income (less than £150 a month) spending around £1600 a month from savings.
When I draw a deferred FS pension I will continue to draw on savings until my state pension kicks in in 2022.
In 2022 I expect my income to be sufficient to live on without the need to draw on savings.

I have done my sums and I "know" my savings are more than sufficient to carry us through. How/when can I legally pass some money to my kids?

We have always paid full council tax and have only ever claimed child benefit(x2).

We wont be liable for inheritance tax (under current rules).

Keep_pedalling

pepper77 wrote: »

I have done my sums and I "know" my savings are more than sufficient to carry us through. How/when can I legally pass some money to my kids?

We have always paid full council tax and have only ever claimed child benefit(x2).

We wont be liable for inheritance tax (under current rules).

It is never illegal to give money away, the only danger is that if you give too much away and later your circumstances change so that you need to claim benefits or need to fund care costs, it can be treated as deprivation of assets.

Have you taken any independant financial advice about your current stratergy for retirement?

pepper77_2

Keep_pedalling wrote: »

It is never illegal to give money away, the only danger is that if you give too much away and later your circumstances change so that you need to claim benefits or need to fund care costs, it can be treated as deprivation of assets.

Have you taken any independent financial advice about your current strategy for retirement?

No. Its a bit late as I've been retired eleven years and counting.

I'm perturbed by your reference to care costs.
Care locally is £1000 a week, there are two of us, so thats £100,000 pa, lets assume a possible five years in care. Are you suggesting I need half a million over and above what I "think" I need before I consider helping my kids ?

Is there a "number" that "they" consider prudent provision for care ?

Keep_pedalling

pepper77 wrote: »

No. Its a bit late as I've been retired eleven years and counting.

I'm perturbed by your reference to care costs.
Care locally is £1000 a week, there are two of us, so thats £100,000 pa, lets assume a possible five years in care. Are you suggesting I need half a million over and above what I "think" I need before I consider helping my kids ?

Is there a "number" that "they" consider prudent provision for care ?

No, there is no number. If you are both fit and healthy now, there is no reason why you can't help your children out with cash gifts. What is liable to lead to trouble is putting your house in your childrens names or giving so much away that your saving are serverely diminished.

You would be very unlucky to have to spend 5 years in care between you, but even then a good proportion of the self funding costs would be met from income, so savings would not go down as fast as you are suggesting.

I would also suggest that it is not to late to seek advice from an IFA (not a tied FA), in fact fast approaching retirement is a good time, as you probably have more options available to you than you have considered.

jennifernil

Keep_pedalling wrote: »

Exemption with gifts from income is out for most people as they simply don't have a level of income that falls below your total expenditure. For instance, You can't claim it if at the same time as gift from income you withdraw money from your savings for things like holidays or a new car.

We have gifted lump sums to our children which will fall out of our estate after 7 years, but we have also taking out a fairly cheap second death term insurance policy, that will cover the IHT on those gifts should both of us not live that long.

Make sure you use up you £3000 annual allowance, if your kids are getting married the each parent can also make an exempt gift of £5000 in contemplation of marrage.

Just as important however spend a good chunk of it on yourselves, you are worth the odd long haul business class flight, or a holiday in that nice villa with its own swimming pool in the south of France.

Once the primary residence nil rate band has been rolled out in a couple of years , couples will be able to leave up to £1M tax free to their children, so if you are in that territory I think you can afford to be generous to yourselves and your children, and it's much more fun disposing of some of your wealth built up in your lifetime when you are alive rather than leaving it till after the grim reaper has paid you a call.

How does that work if you save up, out of income, to buy something like a new car?

E.g. using round figures, if we have a total income after tax of £45k and only use £30k for all our usual spending, then gift, to children and grandchildren a total of say £400 per month out of income, we would still have around £10k per annum left unused.

We then save that for things like a new car or a necessary home repair, and would eventually have to use that "saved" money to pay for the car or whatever.