Tax liability on gifts

chrislong

I am in the fortunate position to gift my son £100,000 to pay off his mortgage..........but I have read that the max annual figure I can gift is £3000 .........If I gift £100.000 would there be a tax liability for him or me, that is my first concern............The way I understand it is that if I gift over £3000 it automatically comes under PETs and that if I live for 7 years after the gift then it would be tax free ????......any help or advice would be greatly appreciated....Thank you

Grumpy_chap

chrislong said:

I am in the fortunate position to gift my son £100,000 to pay off his mortgage..........but I have read that the max annual figure I can gift is £3000 .........If I gift £100.000 would there be a tax liability for him or me, that is my first concern............The way I understand it is that if I gift over £3000 it automatically comes under PETs and that if I live for 7 years after the gift then it would be tax free ????......any help or advice would be greatly appreciated....Thank you

The £3k is an allowance that is exempt from IHT.

The £100k would be a PET as you describe.

You can never incur more IHT by making the gift than keeping the funds within your estate and dying without spending.

Is your estate one that will fall within IHT?  I imagine if you are potentially able to make a gift of £100k, then it may well be.

chrislong

I will get hit heavy for IHT if I don't give my kid's some gifts......I am in my early 70's and in good health hoping to make 80.......So am I correct in thinking that £100,000 gift to my Son will not cost either of us anything in tax if I live for 7 years after making the gift and that I am legal and above board gifting over that £3000 annual limit (£100,000) in one gift........sorry for just trying to be so precise.....Thanks again

Keep_pedalling

chrislong said:

I will get hit heavy for IHT if I don't give my kid's some gifts......I am in my early 70's and in good health hoping to make 80.......So am I correct in thinking that £100,000 gift to my Son will not cost either of us anything in tax if I live for 7 years after making the gift and that I am legal and above board gifting over that £3000 annual limit (£100,000) in one gift........sorry for just trying to be so precise.....Thanks again

There is no tax downside for either of you with such a gift. If your net worth is really in IHT territory then it is a positive thing to do and is perfectly legal.

You seem to be certain that your estate will be hit by IHT, but have you taken into account all your allowance?  A single person with a house worth £175k or more can leave direct descendants £500k IHT free using both the NRB and residential NRB. A widowed person can leave £1M tax free if they inherited their spouses full estate and have a house worth £350k or more.

TadleyBaggie

Short answer, yes if you pass the 7 year point you are clear of any IHT issues. 

Keep_pedalling

TadleyBaggie said:

Short answer, yes if you pass the 7 year point you are clear of any IHT issues. 

But there would not be any issues within the 7 years either. Dying before the 7 years are up simply means the estate pays the same amount of IHT as if the gift had not been made. 

DC22

You seem to be certain that your estate will be hit by IHT, but have you taken into account all your allowance?  A single person with a house worth £175k or more can leave direct descendants £500k IHT free using both the NRB and residential NRB. A widowed person can leave £1M tax free if they inherited their spouses full estate and have a house worth £350k or more.

Can I just ask if that still applies if you inherited your spouse's full estate before they brought in the special rules for your house / special treatment for direct descendants?

sheslookinhot

Keep_pedalling said:

TadleyBaggie said:

Short answer, yes if you pass the 7 year point you are clear of any IHT issues. 

But there would not be any issues within the 7 years either. Dying before the 7 years are up simply means the estate pays the same amount of IHT as if the gift had not been made. 

Why would the estate pay less IHT, if there was 97k “ removed” from the estate ? Why is the gift limit set at £3000 ? If the OP died within the 7 year limit the estate would be due to pay IHT on the “gifted” 97k.

[Deleted User]

sheslookinhot said:

Keep_pedalling said:

TadleyBaggie said:

Short answer, yes if you pass the 7 year point you are clear of any IHT issues. 

But there would not be any issues within the 7 years either. Dying before the 7 years are up simply means the estate pays the same amount of IHT as if the gift had not been made. 

Why would the estate pay less IHT, if there was 97k “ removed” from the estate ? Why is the gift limit set at £3000 ? If the OP died within the 7 year limit the estate would be due to pay IHT on the “gifted” 97k.

If 100000 was gifted and the donor lived for seven years, the whole £100000 would not form part of the estate for IHT purposes. 

Sandtree

sheslookinhot said:

Keep_pedalling said:

TadleyBaggie said:

Short answer, yes if you pass the 7 year point you are clear of any IHT issues. 

But there would not be any issues within the 7 years either. Dying before the 7 years are up simply means the estate pays the same amount of IHT as if the gift had not been made. 

Why would the estate pay less IHT, if there was 97k “ removed” from the estate ? Why is the gift limit set at £3000 ? If the OP died within the 7 year limit the estate would be due to pay IHT on the “gifted” 97k.

As MPs have decided that this is an appropriate amount... same as any other value in any other law. Why does S75 only start at goods over £100? Why not £200, especially given how long its been since last increased?

There is presumably a balance in accepting that people give gifts as a routine matter of being a family members etc but wanting to ensure someone doesn't gift away everything so no IHT is raised meaning other taxes elsewhere have to increase to compensate.