Gifted deposit

thefair1973

We are looking to buy an investment flat in my partner’s name. She doesn’t work and that reduces our options in terms of lenders. However, when my partners’ Grandad died, the inheritance was invested in a fund for 8 years by her parents, with my partner and 3 siblings the beneficiaries. The bond matured this year and my partner received a sizeable cheque, part of which we would like to use as the deposit for this investment property.

Our mortgage broker is saying that Godiva mortgages would treat this as a gifted deposit. My concern is that if it is treated in this way and her parents were to die in the next 7 years, the gifted deposit could again be subject to IHT, which was the whole point of the sum being invested for 8 years initially.

Is anyone able to advise whether the above risk is real, or the fact that the money had previously been invested to avoid IHT is sufficient?

Thanks in advance.

ACG

A mortgage lender treating it as a gift does not mean legally speaking it is a gift. I own 100% of my limited company, legally speaking I am an employee of the company but lenders would treat me as self employed.

That is not to say it is not a gift, I have no idea where it stands for tax purposes.

enthusiasticsaver

I am confused. If the granddad left the money to the grandchildren then any inheritance tax due on his estate would have been paid at the time so there was no need to invest for 8 years to avoid this as he was dead anyway? If the granddad had left the money to your partners parents then that is different and the money would have been liable to inheritance tax should her parents estate be liable to that and either had died within the 7 years. My mum and ourselves have given many PETs (personal equity transfers) over the years and once the 7 years is over it is out of the estate. Was the gift from your partners parents or was it in granddads will?

Regardless of the inheritance tax position the mortgage lender may take it as a gift from her parents in which case they may need to write a letter stating it is a gift and not a loan and they have no financial interest in the property. That has nothing to do with inheritance tax so I think you are overthinking this. My feeling would be your partner should say it is an inheritance and not a gift.

thefair1973

The money was left to her parents, but they placed it in to a trust with the children as the beneficiaries. All tax has been settled in the sum, but just wanted to avoid it being seen as a taxable gift and avoid additional tax being paid on it.

Mojisola

thefair1973 wrote: »

However, when my partners’ Grandad died, the inheritance was invested in a fund for 8 years by her parents, with my partner and 3 siblings the beneficiaries. The bond matured this year and my partner received a sizeable cheque, part of which we would like to use as the deposit for this investment property.

My concern is that if it is treated in this way and her parents were to die in the next 7 years, the gifted deposit could again be subject to IHT, which was the whole point of the sum being invested for 8 years initially.

Why not just give the grandchildren the money eight years ago or arrange a DOV so that the money didn't pass through the parents' estates at all?

silvercar

thefair1973 wrote: »

The money was left to her parents, but they placed it in to a trust with the children as the beneficiaries. All tax has been settled in the sum, but just wanted to avoid it being seen as a taxable gift and avoid additional tax being paid on it.

If it is in a trust then it is out of the parent's estate, so no IHT worries.

(That's my understanding of how trusts work - the trust is a separate entity.)

Noe the trust is being broken up and the beneficiaries are receiving the money. The lender can choose to consider it a gift if they please; from their point of view it isn't money that has been saved up. You don't need to get in a discussion with the lender, but it would be a gift from the trust rather than the parents.

Why not just give the grandchildren the money eight years ago or arrange a DOV so that the money didn't pass through the parents' estates at all?

Many possible reasons:
the age of the grandchildren
the possibility that there may be more grandchildren now than there were 7 years ago
one or more of the grandchildren may have had spouses who would potentially have a claim on the money if the grandchildren received it directly
unwillingness of parents to look too much to the future
other inheritances at the same time.

amnblog

If your Partner was left the funds 8 years ago by her Grandfather and IHT due would have been paid by now.

If they were not left to her but have now been transferred to her then the funds could be a potentially exempt transfer with a bill to be paid in the next 7 years.

As stated, what the Lender considers the funds are not relevant to what the taxman considers them.