Regular Gift

systemshq

Hi Folks

i currently live with my elderly mother at home. She wants to start paying me in the form of a gift once a month around £1200 for looking after her. She can easily afford this. Is this allowed?

Many thanks in advance

Primrose

There are no laws which say she can,t do. this - she can do whatever she likes with her own money if she can afford it but I suspect there may be tax consequences for one or the other of you.

I suggest for starters, every new tax year in April she pays you the £3000 annual gift allowance she,s allowed to make each tax year as a one off lump sum which I imagine you are allowed to receive tax free as a gift.

Then she should divide the remaining amount into monthly payments although strictly speaking you might have to declare this as extra earned income. I'm not sure about this though if its being paid by a parent in return for services rendered. Maybe somebody with a better knowledge of how family taxes work can comment.

onomatopoeia99

"Pay" and "gift" are not the same. You need to be clear if it's one or the other. Earned income (aka "pay") and gifts are subject to different tax rules, and being an employee brings an awful lot of obligations on the employer.

Linton

It certainly is allowed. What is more difficult is the tax position....


Firstly your tax. If it is a regular gift then there is no tax to pay. If it is "wages" for providing care I cannot see at the moment why you should not be considered to be employed with all that entails.


Then there is inheritance tax. When mother dies the some total of all gifts she made in the previous 7 years is regarded as part of her estate for tax purposes. Normally the extra tax would be paid by the estate but if this were not possible HMRC could chase you.


But:
1) There is a £3k annual allowance for gifts.
2) Gifts from income: If the gifts purely came from her income and she did not use any of her savings then the money would not be included in the IHT calculation. In this case she/you would have to keep careful notes so that you would be in a position to prove to HMRC that the gifts were really from income.

Keep_pedalling

Depending on the size of her estate, it might be more advantageous to gift you a larger one off sum, followed by annual gifts of £3000. If she lives a further 7 years then that larger lump sum would not be subject to IHT.

If the £1200 a month is coming out of surplus income then that automatically falls out of her estate, so in that case no need for the bigger lump sum.

She should treat this as a gift not as payment, which will have big tax implications for you.