Receiving money as a gift

savingsguy

Hi there,
If you have received money as a gift from a parent, fairly large amount, more than £50k, how is that best treated tax-wise?
Do you need to complete a tax return? I've heard something about a 7-year rule.
Are there insurances around the tax payment if the parent passed away within that 7 years?
All the best!

Jeremy535897

No return is required. If the amount is within the donor's nil rate band (£325,000 less any other non-exempt gifts in the past seven years), no tax can ever arise on the gift, although it will reduce the exempt amount of the estate of the donor if they die within seven years.

[Deleted User]

You will not be liable for any tax on the gift. There is no tax on gifts in the UK.

p00hsticks

[Deleted User] said:

You will not be liable for any tax on the gift. There is no tax on gifts in the UK.

But to qualify just slightly - in the (rare) circumstance that the person that gave you the gift dies within seven years of giving it, and has given away enough in that time to be liable to inheritance tax but not have enough left in their estate to pay it, I believe then the executors of the estate could come looking at the people who received the gifts to pay it.

(Otherwise everyone could just give away all their estate immediately prior to death and avoid IHT).

 

Jeremy535897

p00hsticks said:

purdyoaten2 said:

You will not be liable for any tax on the gift. There is no tax on gifts in the UK.

But to qualify just slightly - in the (rare) circumstance that the person that gave you the gift dies within seven years of giving it, and has given away enough in that time to be liable to inheritance tax but not have enough left in their estate to pay it, I believe then the executors of the estate could come looking at the people who received the gifts to pay it.

(Otherwise everyone could just give away all their estate immediately prior to death and avoid IHT).

 

That is why I qualified my advice to say that the gift must be within the nil rate band to be sure there is no liability on the donee if the donor dies within seven years of the gift. In your scenario, the executors could only look to the donees who received PETs that subsequently became chargeable and where the nil rate band was exceeded.

Keep_pedalling

If you are making gifts to reduce IHT liability you can cover an unexpected early demise through a term insurance policy, which will cover any tax due.

Jeremy535897

Keep_pedalling said:

If you are making gifts to reduce IHT liability you can cover an unexpected early demise through a term insurance policy, which will cover any tax due.

If the gifts are within the nil rate band, there is never any tax due. If someone with an estate over the nil rate band wants to take out insurance to cover the liability on death, that is their affair, but they need to ensure that the proceeds do not add to their estate on death.

[Deleted User]

p00hsticks said:

[Deleted User] said:

You will not be liable for any tax on the gift. There is no tax on gifts in the UK.

But to qualify just slightly - in the (rare) circumstance that the person that gave you the gift dies within seven years of giving it, and has given away enough in that time to be liable to inheritance tax but not have enough left in their estate to pay it, I believe then the executors of the estate could come looking at the people who received the gifts to pay it.

(Otherwise everyone could just give away all their estate immediately prior to death and avoid IHT).

 

Yes - I obviously agree. However, the question ‘ I have received a gift - do I have to pay tax on it?’ must be THE question of most frequency on this forum. I suppose, what they really mean is ‘do I have to pay tax on it now or in the near future?’  or ‘am I personally liable for tax on this?’. I just would like to avoid the scenario where an answer stating that no tax is payable on gifts in the UK is met with - ‘ Ah, but p00hsticks or jeremy said.........’

Jeremy535897

[Deleted User] said:

p00hsticks said:

[Deleted User] said:

You will not be liable for any tax on the gift. There is no tax on gifts in the UK.

But to qualify just slightly - in the (rare) circumstance that the person that gave you the gift dies within seven years of giving it, and has given away enough in that time to be liable to inheritance tax but not have enough left in their estate to pay it, I believe then the executors of the estate could come looking at the people who received the gifts to pay it.

(Otherwise everyone could just give away all their estate immediately prior to death and avoid IHT).

 

Yes - I obviously agree. However, the question ‘ I have received a gift - do I have to pay tax on it?’ must be THE question of most frequency on this forum. I suppose, what they really mean is ‘do I have to pay tax on it now or in the near future?’  or ‘am I personally liable for tax on this?’. I just would like to avoid the scenario where an answer stating that no tax is payable on gifts in the UK is met with - ‘ Ah, but p00hsticks or jeremy said.........’

Not me guv...

macman

Perhaps can be summed up as: there is no liability on the recipient. There may be a liability arising on the donor's estate, should they die within 7 years.

Jeremy535897

macman said:

Perhaps can be summed up as: there is no liability on the recipient. There may be a liability arising on the donor's estate, should they die within 7 years.

Not really. If a PET becomes chargeable due to the donor dying within seven years of the gift, and the gift exceeds the available nil rate band, so tax is chargeable, the executors can come to the donee for reimbursement of the tax. The point is that only a very tiny proportion of lifetime gifts exceed the available nil rate band. So if a parent gives £100,000 to each of three children, say, and made no other non-exempt gifts in the previous seven years, there is never any tax on the gifts, even if the donor dies a day later. 

"Lifetime gifts

The Inheritance Tax Act 1984 (IHTA 1984) provides that upon the death of an individual, any additional IHT on immediately chargeable gifts made within 7 years before death, and IHT on failed potentially exempt transfers (PETs), is normally payable by the donee recipient.  However, if the tax remains unpaid 12 months after the end of the month in which the donor dies, their PR(s) may be assessed for that unpaid tax and interest (s.200(1)(a) IHTA 1984).  The extent of the PRs potential liability is discussed below.

There is no obligation on HMRC to raise an assessment on the donee of any gift – it is sufficient that the tax remains unpaid after the end of the 12 month period.

Technically, the PRs have a right of reimbursement from the donee(s) for the IHT paid.  However, depending upon the circumstances, such right may have little value in itself, especially if, say, the donee is outside of the UK (the costs of recovery could exceed the amount in question) or the donee is impecunious."

From https://www.lawskills.co.uk/articles/2019/09/who-pays-inheritance-tax-iht-on-a-persons-estate/