Receiving money from a relative - how to avoid tax/charges?

inquisitivewanderer

My MIL plans to gift £100k to my Wife and I to pay in to our mortgage.
We took her in a couple of years ago when my FIL passed away. She has paid no rent up to this point and has inherited money from her Mothers estate. She wants to give us £100k to pay towards our mortgage.
I plan to stick the £100k in an easy-access savings account for a couple of years until our fixed rate is up at which point I hope to put it all into the mortgage.
Can anyone confirm what kind of inheritance tax or any other charges I would be confronted with? Is there a way around inheritance taxes or respective charges?
TIA.

Cornish_mum

Hi I would post this thread on the tax cutting forum for more advice. Firstly are your MIL assets more than the IHT allowance and was your FIL allowance used when he passed (if not the allowance can be passed to your MIL)? You may not need to worry about IHT if the assets are below the allowance. https://www.gov.uk/inheritance-tax. 

Also gifts during life only considered for the purposes of IHT for the 7 years prior to inheritance, anything before this does not count. 

If the money came from your GMIL estate, it might just be best to consider if a deed of variation is applied to your GMIL will https://www.gov.uk/alter-a-will-after-a-death, so your wife inherits instead of your MIL. This means IHT allowances are only to be considered for your GMIL estate and your MIL and FIL allowances will not be considered for the assets. 

CM

inquisitivewanderer

Cornish_mum said:

Hi I would post this thread on the tax cutting forum for more advice. Firstly are your MIL assets more than the IHT allowance and was your FIL allowance used when he passed (if not the allowance can be passed to your MIL)? You may not need to worry about IHT if the assets are below the allowance. https://www.gov.uk/inheritance-tax. 

Also gifts during life only considered for the purposes of IHT for the 7 years prior to inheritance, anything before this does not count. 

If the money came from your GMIL estate, it might just be best to consider if a deed of variation is applied to your GMIL will https://www.gov.uk/alter-a-will-after-a-death, so your wife inherits instead of your MIL. This means IHT allowances are only to be considered for your GMIL estate and your MIL and FIL allowances will not be considered for the assets. 

CM

Hi,

Thanks for the response & info provided.

MIL assets are well below the IHT allowance - approx £130k from inheritance from her mother.
Of the £130k she plans to gift us £100k to put into the mortgage, keeping the other £30k in her bank.

On the basis that this is well under the IHT allowance of £325k, I assume she can gift us this £100k without us being penalised tax-wise, regardless of whether she was to pass in the following 7 years.

Am I assuming this correctly?

Thanks in advance.

DullGreyGuy

Where does she currently live such that all £130k of her estate is liquid?

You wont be liable for any taxes etc assuming its a gift. If she were to die within 7 years then part of the gift will be considered still part of her estate for calculating any IHT due but its the estate that pays the IHT if you have miss-calculated the estate's worth.

Obviously for her there are other considerations if she is dependent on the state for benefits or needs to go into care as this can be considered an intentional deprivation of capital.

inquisitivewanderer

DullGreyGuy said:

Where does she currently live such that all £130k of her estate is liquid?

You wont be liable for any taxes etc assuming its a gift. If she were to die within 7 years then part of the gift will be considered still part of her estate for calculating any IHT due but its the estate that pays the IHT if you have miss-calculated the estate's worth.

Obviously for her there are other considerations if she is dependent on the state for benefits or needs to go into care as this can be considered an intentional deprivation of capital.

As I mentioned in the OP, she lives with us.
She used to live with her husband who suffered a plethora of illnesses over the last 30 years meaning she was his full time carer. When he passed, she had no money, no savings, and any help she received from the state over the years was almost entirely cut. Hence she had nowhere to live, and so we moved her in with us.
She now wishes to return the kindness by helping to reduce our mortgage loan. She has no assets, savings or pensions to draw on, but equally no debts or loans to pay off.

Your last point is a good one. She doesn't rely on the state for any benefits, but who knows what the future holds in terms of going into care - I hope that never happens based on other family members experience of the care system!