Tax implications on gifted money

Keep_pedalling

Sensory said:

Regular payments are not considered gifts with regards to Inheritance Tax. As long as the money comes from regular monthly income and the payer can still meet their usual living costs, the payments are considered 'normal expenditure out of income'.

You are saying if I make regular payments from savings that they are not gifts, which is not true.

We don’t have excess income as we are not at all frugal, but we do use our annual allowances and usually exceed those. Currently we are paying nursery fees for one of our grand children on a monthly basis those fees are classed as gifts and are subject to the 7 year rule.

enthusiasticsaver

Dh6 said:

Morning all, my parents have spoken about the possibility of gifting me £1000 per month as a sort of advanced inheritance. 

I am financially independent at 35 and own my own home, so the money isn’t needed to cover bills or mortgage payments. 

I have reluctantly agreed to accept the money going forward but I’d like to sound out any tax implications that may occur if we do go ahead with this.

My plan would be to add the £12k PA to my S&S ISA and SIPP in order to achieve my aim of early retirement further down the line.

For context, my parents are both on large final salary pensions who live frugally ( as do I ) and have taken fairly substantial lump sums from each of their pensions.

Any information would be gratefully received, many thanks.

Personal equity transfers are free from tax unless the giver dies within 7 years then there may be inheritance tax to pay if the estate falls within the scope of it.  However people are allowed to gift up to £3k per year with no tax implications for the recipient and if the £1k is coming from income rather than savings then there will also be no tax due so you should be fine. 

eskbanker

Daliah said:

Sensory said:

Daliah said:

Sensory said:

Regular payments are not considered gifts with regards to Inheritance Tax. As long as the money comes from regular monthly income and the payer can still meet their usual living costs, the payments are considered 'normal expenditure out of income'.

So if the regular payments are not considered a gift for the giver, what about the recipient? Surely they can't receive a gift if none has been given, so the only alternative would be income? 

Does it matter? It certainly wouldn't be classed as income for tax purposes.

It’s either a gift or it isn’t.

It is a gift but is exempt from consideration for inheritance tax, and income tax isn't applicable for the recipient - it doesn't have to qualify for one tax or the other and can be exempt from both!

https://www.gov.uk/inheritance-tax/gifts

If you make regular payments

You can make regular payments to help with another person’s living costs. There’s no limit to how much you can give tax free, as long as:

• you can afford the payments after meeting your usual living costs
• you pay from your regular monthly income

 

Dh6

Thanks for all of the input above, it’s very helpful.

Im still not clear on what it is I’d need to do or my parents need to do.

Would both parties need to keep records of the transactions, if so what do we need to do exactly?

Ive spoken to my parents regarding them having more holidays etc but they’re happy with a weekend away in the Lake District every couple of months. Long haul travel doesn’t appeal to them at all. Before Covid struck they used to have two or three trips to the canaries each year self catering, each to their own!

kind regards DH

eskbanker

Keep_pedalling said:

Sensory said:

Regular payments are not considered gifts with regards to Inheritance Tax. As long as the money comes from regular monthly income and the payer can still meet their usual living costs, the payments are considered 'normal expenditure out of income'.

You are saying if I make regular payments from savings that they are not gifts, which is not true.

We don’t have excess income as we are not at all frugal, but we do use our annual allowances and usually exceed those. Currently we are paying nursery fees for one of our grand children on a monthly basis those fees are classed as gifts and are subject to the 7 year rule.

The quoted post is merely repeating what's documented on the IHT gift page linked above, which states that there is an exemption for regular payments from surplus regular monthly income.  Other exemptions are available, such as the £3K annual allowance - it's not clear if you're asserting that your gifts from savings are treated as tax-free for IHT purposes but if so, under which of the exemptions do you believe they qualify?

Keep_pedalling

eskbanker said:

Keep_pedalling said:

Sensory said:

Regular payments are not considered gifts with regards to Inheritance Tax. As long as the money comes from regular monthly income and the payer can still meet their usual living costs, the payments are considered 'normal expenditure out of income'.

You are saying if I make regular payments from savings that they are not gifts, which is not true.

We don’t have excess income as we are not at all frugal, but we do use our annual allowances and usually exceed those. Currently we are paying nursery fees for one of our grand children on a monthly basis those fees are classed as gifts and are subject to the 7 year rule.

The quoted post is merely repeating what's documented on the IHT gift page linked above, which states that there is an exemption for regular payments from surplus regular monthly income.  Other exemptions are available, such as the £3K annual allowance - it's not clear if you're asserting that your gifts from savings are treated as tax-free for IHT purposes but if so, under which of the exemptions do you believe they qualify?

 No, I am not asserting that, those payments are not exempt.

Keep_pedalling

Dh6 said:

Thanks for all of the input above, it’s very helpful.

Im still not clear on what it is I’d need to do or my parents need to do.

Would both parties need to keep records of the transactions, if so what do we need to do exactly?

Ive spoken to my parents regarding them having more holidays etc but they’re happy with a weekend away in the Lake District every couple of months. Long haul travel doesn’t appeal to them at all. Before Covid struck they used to have two or three trips to the canaries each year self catering, each to their own!

kind regards DH

It is just your parents who need to keep records. Have a look at form IHT403 parts 20 to 22 to see what is required.

eskbanker

Keep_pedalling said:

eskbanker said:

Keep_pedalling said:

Sensory said:

Regular payments are not considered gifts with regards to Inheritance Tax. As long as the money comes from regular monthly income and the payer can still meet their usual living costs, the payments are considered 'normal expenditure out of income'.

You are saying if I make regular payments from savings that they are not gifts, which is not true.

We don’t have excess income as we are not at all frugal, but we do use our annual allowances and usually exceed those. Currently we are paying nursery fees for one of our grand children on a monthly basis those fees are classed as gifts and are subject to the 7 year rule.

The quoted post is merely repeating what's documented on the IHT gift page linked above, which states that there is an exemption for regular payments from surplus regular monthly income.  Other exemptions are available, such as the £3K annual allowance - it's not clear if you're asserting that your gifts from savings are treated as tax-free for IHT purposes but if so, under which of the exemptions do you believe they qualify?

 No, I am not asserting that, those payments are not exempt.

So you're agreeing that regular payments aren't treated as tax-free gifts by the IHT rules unless they're from surplus income (or within the scope of other exemptions), which is what Sensory was saying?

Sensory

Daliah said:

Sensory said:

Daliah said:

Sensory said:

Regular payments are not considered gifts with regards to Inheritance Tax. As long as the money comes from regular monthly income and the payer can still meet their usual living costs, the payments are considered 'normal expenditure out of income'.

So if the regular payments are not considered a gift for the giver, what about the recipient? Surely they can't receive a gift if none has been given, so the only alternative would be income? 

Does it matter? It certainly wouldn't be classed as income for tax purposes.

It’s either a gift or it isn’t.

In the general vernacular it's considered a gift because nothing is expected or given in return, but how gifts are treated and classified depends on the financial context in which they're considered.

Keep_pedalling said:

Sensory said:

Regular payments are not considered gifts with regards to Inheritance Tax. As long as the money comes from regular monthly income and the payer can still meet their usual living costs, the payments are considered 'normal expenditure out of income'.

You are saying if I make regular payments from savings that they are not gifts, which is not true.

We don’t have excess income as we are not at all frugal, but we do use our annual allowances and usually exceed those. Currently we are paying nursery fees for one of our grand children on a monthly basis those fees are classed as gifts and are subject to the 7 year rule.

I specifically mentioned regular monthly income; I never once mentioned savings at all.

Daliah

eskbanker said:

Daliah said:

Sensory said:

Daliah said:

Sensory said:

Regular payments are not considered gifts with regards to Inheritance Tax. As long as the money comes from regular monthly income and the payer can still meet their usual living costs, the payments are considered 'normal expenditure out of income'.

So if the regular payments are not considered a gift for the giver, what about the recipient? Surely they can't receive a gift if none has been given, so the only alternative would be income? 

Does it matter? It certainly wouldn't be classed as income for tax purposes.

It’s either a gift or it isn’t.

It is a gift but .....

I would agree. I was only picking up on @Sensory saying it is not a gift.