Gifting money to adult children to enable them to pay inheritance tax

ecb271

My mum is planning to start gifting money to me and my sibling to allow us to have cash available to pay the inheritance tax due on her estate when she dies. She is divorced, in her 60s and her estate is over the IHT threshold - her hope is that if we have cash available to pay the tax, this takes the pressure off having to sell her property immediately (or at all) depending on circumstances. My mum would like us to hold the money in a joint account, so that we both have access to it and so we can both see that the other one is not using it for anything else. I think a savings account would be best as I don't want to create a financial link with my sibling (I don't know their credit score but I don't want us to be impacted for example if we both took out a new mortgage at the same time). Are there any potential pitfalls we should be aware of with this plan?

JGB1955

I can see plenty of pitfalls and absolutely no merit in this idea.  I'm sure that other, more financially savvy, posters will be along soon to explain whether I am right or wrong on this score. 

csgohan4

she needs a independent financial advisor to sit down and reduce her estates tax liability 

Jeremy535897

It sounds as if her estate will have plenty of cash in it to pay any inheritance tax due (or would do but for the gift), and if not, the executors can always borrow to fund the inheritance tax (or pay the inheritance tax on the property by instalments). There would be interest to pay, whichever option is chosen. The only real merit in the proposal is that if she lives for more than seven years after the gift, the cash gifted falls outside her estate for inheritance tax.

There are other issues, for example:

• deprivation of assets, in the unlikely event she needed support from the council
• siblings falling out, dying, divorcing etc etc
• she needs the money back for some reason

An IFA will advise on investments rather than inheritance tax.

Keep_pedalling

Gifting is a good idea, gifting with ridiculous conditions is plain daft. If she is in good health then hopefully she will survive 7 years and reduce the amount of tax that the executors need to pay.  

Keep_pedalling

Jeremy535897 said:

It sounds as if her estate will have plenty of cash in it to pay any inheritance tax due (or would do but for the gift), and if not, the executors can always borrow to fund the inheritance tax (or pay the inheritance tax on the property by instalments). There would be interest to pay, whichever option is chosen. The only real merit in the proposal is that if she lives for more than seven years after the gift, the cash gifted falls outside her estate for inheritance tax.

There are other issues, for example:

• deprivation of assets, in the unlikely event she needed support from the council
• siblings falling out, dying, divorcing etc etc
• she needs the money back for some reason

An IFA will advise on investments rather than inheritance tax.

Deprivation of assets is unlikely to be an issue as she has a house that can fund residential care, and as she has an estate in excess of £500k then it can easily be shown that any gifts she makes are made f or. iHT planning rather than avoiding care costs.  The other 2 points are spot on, although there are plenty of IFAs who provide IHT planning.

[Deleted User]

Keep_pedalling said:

Gifting is a good idea, gifting with ridiculous conditions is plain daft. If she is in good health then hopefully she will survive 7 years and reduce the amount of tax that the executors need to pay.  

It is daft - but it is amazing how many elderly people do not to want to leave ‘debt’ after their death. My mother is of the same view and has given my sister money specifically to cover funeral costs. The fact that each of us will benefit from her estate on passing doesn’t seem to be a factor at all. 

Jeremy535897

Keep_pedalling said:

Jeremy535897 said:

It sounds as if her estate will have plenty of cash in it to pay any inheritance tax due (or would do but for the gift), and if not, the executors can always borrow to fund the inheritance tax (or pay the inheritance tax on the property by instalments). There would be interest to pay, whichever option is chosen. The only real merit in the proposal is that if she lives for more than seven years after the gift, the cash gifted falls outside her estate for inheritance tax.

There are other issues, for example:

• deprivation of assets, in the unlikely event she needed support from the council
• siblings falling out, dying, divorcing etc etc
• she needs the money back for some reason

An IFA will advise on investments rather than inheritance tax.

Deprivation of assets is unlikely to be an issue as she has a house that can fund residential care, and as she has an estate in excess of £500k then it can easily be shown that any gifts she makes are made f or. iHT planning rather than avoiding care costs.  The other 2 points are spot on, although there are plenty of IFAs who provide IHT planning.

That's why I said "in the unlikely event". 

xylophone

My mum is planning to start gifting money to me and my sibling to allow us to have cash available to pay the inheritance tax

You are aware that  if there is cash available in bank and building society accounts, it is possible for the executor to use the Direct Payment Scheme to pay IHT before probate is granted?

https://www.gov.uk/paying-inheritance-tax/deceaseds-bank-account

Your mother might consider taking out an insurance policy written in trust  for you and your sibling

https://www.moneysupermarket.com/life-insurance/tax/

ecb271

Thank you all for your replies. I should have said that the hope is to reduce the IHT due (given her age and good health) as well as help us have the cash available to pay IHT. I am aware that if she has the cash available in her accounts on her death that this can be used to pay IHT, her concern is her savings being depleted during retirement and her cash being insufficient to cover the IHT. My main concern is in holding the money jointly with my sibling and the complications that brings so thank you for highlighting other potential issues and solutions to reduce / pay IHT.

Keep_pedalling

ecb271 said:

Thank you all for your replies. I should have said that the hope is to reduce the IHT due (given her age and good health) as well as help us have the cash available to pay IHT. I am aware that if she has the cash available in her accounts on her death that this can be used to pay IHT, her concern is her savings being depleted during retirement and her cash being insufficient to cover the IHT. My main concern is in holding the money jointly with my sibling and the complications that brings so thank you for highlighting other potential issues and solutions to reduce / pay IHT.

Is she aware that where an estate is mainly tied up in property HMRC allow IHT to be paid in instalments of up to 10 years? Yes that involves interest to be paid, but that is a far better option than having a just in case sum of money set aside in cash earning nothing in interest for possibly decades. Her perceived problem in in reality non existent and her solution to it, is full of potential problems.