IHT and £250 gift allowance

mdni

I've learnt a lot by reading this site but I have a question

I understand my mother (who will need to pay IHT) can gift £3000 each year. 

She has 5 grandchildren and has always given them £50 for birthdays and Christmas each year, total £100

I also understand she can gift £250 to as many people as she wants to. Can she gift £250 to each grandchild as well as the birthday/Christmas gifts or can she only give £150 tax free?

All this is from day to day expenditure, not investments 

(I understand she can give as much as she wants but that will then be included for IHT)

[Deleted User]

All this is from day to day expenditure, not investments 
(I understand she can give as much as she wants but that will then be included for IHT)

You misunderstand. IF they are regular gifts out of income she can give away as much as she likes and they will NOT be included for IHT.

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14231

mdni

Thank you, I had not understood that

She withdrew £10,000 from her investments to replace a TV, carpets and garden furniture and a holiday which hasn't happened  - total about £6,000
Since then she has built up a balance in her current account of £13,000 including the £6,000.  Will the £6,000 be subject to IHT or is it all now exempt?   

Keep_pedalling

You mother will not have to pay IHT, but her estate may have to pay it. Before we get into the nitty gritty of what is exempt or not, can we take a step back and first off establish whether or not her estate is over her exempt allowances ( I know you said it is, but you are starting from knowing little about IHT, so you may not have allowed for everything)

What is her current estimated net worth? 

Is she a widow?
if the answer to the above is yes, then did she inherit all of his estate.
Assuming she owns her own home, how much is it worth?

mdni

Keep_pedalling said:

You mother will not have to pay IHT, but her estate may have to pay it. Before we get into the nitty gritty of what is exempt or not, can we take a step back and first off establish whether or not her estate is over her exempt allowances ( I know you said it is, but you are starting from knowing little about IHT, so you may not have allowed for everything)

What is her current estimated net worth? 

Is she a widow?
if the answer to the above is yes, then did she inherit all of his estate.
Assuming she owns her own home, how much is it worth?

I'm learning that a little knowledge maybe a dangerous thing

Estimated current net worth is £650,000
She divorced in 1976 and never remarried. She got half a house in the divorce settlement and nothing else, £15,000. Then at 44 she set up and ran a business until she was 70. She is 88 now. 
She downsized several times and invested the money. She sold her retirement flat for £235,000 in January 2019 and came to live with me. That money is also invested.

She has a financial advisor who is very cautious and seems reluctant to let her spend anything from the investments but I insisted she needed £12,000 to spoil herself! (HD TV which she can watch with MD, reclining chair so she can get up by herself, nice carpet for her bedroom, etc) the bank charges a fee every time money is withdrawn which is why we took £12,000 in one go. 

She has a state pension of about £600/ 4 weeks and £235/ month from Old Mutual. 
She pays me £200/ month 'keep' and gives me her winter fuel allowance. 

Keep_pedalling

mdni said:

Keep_pedalling said:

You mother will not have to pay IHT, but her estate may have to pay it. Before we get into the nitty gritty of what is exempt or not, can we take a step back and first off establish whether or not her estate is over her exempt allowances ( I know you said it is, but you are starting from knowing little about IHT, so you may not have allowed for everything)

What is her current estimated net worth? 

Is she a widow?
if the answer to the above is yes, then did she inherit all of his estate.
Assuming she owns her own home, how much is it worth?

I'm learning that a little knowledge maybe a dangerous thing

Estimated current net worth is £650,000
She divorced in 1976 and never remarried. She got half a house in the divorce settlement and nothing else, £15,000. Then at 44 she set up and ran a business until she was 70. She is 88 now. 
She downsized several times and invested the money. She sold her retirement flat for £235,000 in January 2019 and came to live with me. That money is also invested.

She has a financial advisor who is very cautious and seems reluctant to let her spend anything from the investments but I insisted she needed £12,000 to spoil herself! (HD TV which she can watch with MD, reclining chair so she can get up by herself, nice carpet for her bedroom, etc) the bank charges a fee every time money is withdrawn which is why we took £12,000 in one go. 

She has a state pension of about £600/ 4 weeks and £235/ month from Old Mutual. 
She pays me £200/ month 'keep' and gives me her winter fuel allowance. 

She sounds a wonderful woman. Apart from her £325k nil rate band her estate will also be able to claim the her residential nil rate even though she has moved in with you. This means £500K of her estate will be tax free the rest is subject would be subject to IHT. You are right her FA is being too cautious, she has more than enough to see her through the latter part of her life, and you were right to encourage her to spend a little on herself.

She should certainly make use of her annual allowances. If she did not use last years she can make a £6000 gift now, and another £3000 after the 5th April. She can also make as many £250 gifts as she likes but only to people who have not benefited from other gifts. For example we give £3000 to our children, £250 to son and daughter in law, and top up a our grandchildren’s JISA by the same amount each birthday.

These are not the maximum gifts she can give. She could make considerably larger gifts, which would offer the chance of reducing her IHT liability, but she should do that ASAP to maximise the change of surviving 7 years beyond the gift. We have also done this, but even if it does not work she gets the joy of seeing her money put to good use in her lifetime.

getmore4less

This IFA might need a close look at what they are charging and advising as something should have been done for tax planning much sooner and at the latest when the flat was sold.

and why on earth is he trying to retain the money?
and why is it all in assets that have charges to get out?

reality check.

age 88  probably a £500k nil rate allowance

£880pm income enough  to cover all costs and money left over living with family who could help out if needed.
+ any investment income 
£650k in assets lest go with a modest 2% that's £1k per month

draw down how much a year depends how long she lives
100 £54k
110 £30k
120 £20k

I would start with and look for any better options from this 
Give away £150k now.  set that 7 year clock running 
get the £500k left  generating income not growth
spend all the income  using gifts from income where needed if still too much
or even get spending more if into things like long luxury cruises.
Find something to spend £150k in <7 years and the estate is back under the £500 even with the PET.

Should £25k net without touching the capital  that would cover a decent life and holidays

if currently fit enough no deprivation of assets as primary reason is IHT tax planning and £500k left along with income is enough for care.


Options to look at along side,
if you have a mortgage she could buy into your place and pay it off.
other siblings that may need to be considered.
grand kids might need trust for any money going their way if under 18
Contributions to the household could go up and not be considered gifts
there will be other.