The £3000 annual gift limit

TinyDiver

My mum wants to gift both of my kids £5000 now, instead of leaving this to them in her will. She keeps getting stuck on the £3000 annual tax-free limit, as everything she reads states this limit for gifts. She probably won't live another 7 years as she is now in her mid nineties. Her total estate is probably worth around £180,000 max as my parents did equity release. It's very hard to find written confirmation of this, but my understanding is that she can gift as much as she wants, tax-free, because it is below the IHT limit. All I can find on the Government website is that 'tax MAY be payable on amounts over £3000'. Is this referring to where estates are valued at more than the IHT tax-free allowance? Or is this a suggestion that my kids might have to pay some other kind of tax on any gift over £3000 (such as income tax?). I am pretty sure she can gift over £3000 as her estate is nowhere near the tax-free limit. Can anyone clarify this please?

penners324

If the estate is worth £610,000 or more then IHT would be payable on gifts over £3k.

That is the essence of the law, practically it's slightly different but for simplicity sake that's it

Keep_pedalling

penners324 said:

If the estate is worth £610,000 or more then IHT would be payable on gifts over £3k.

That is the essence of the law, practically it's slightly different but for simplicity sake that's it

I have no idea where you come up with that figure but you are way off beam with it, however it does not matter in this case as the OP has said the estate is way under her IHT allowances which could be as high £1M for a widow.

Now to the OPs question. £3000 is the annual IHT exemption and as you have said there is no limit to how much someone can gift. The only time someone who receives a gift might be liable for IHT would be for gifts exceeding the NTB (£325k) and only then if someone had given so much away that there was not enough left in the estate to meet an IHT bill, so an extremely rare  occurrence. 

Your mother can make those gifts with no worry about any tax implication at all.

TheMilkmansDad

Keep_pedalling said:

penners324 said:

If the estate is worth £610,000 or more then IHT would be payable on gifts over £3k.

That is the essence of the law, practically it's slightly different but for simplicity sake that's it

I have no idea where you come up with that figure but you are way off beam with it, however it does not matter in this case as the OP has said the estate is way under her IHT allowances which could be as high £1M for a widow.

Now to the OPs question. £3000 is the annual IHT exemption and as you have said there is no limit to how much someone can gift. The only time someone who receives a gift might be liable for IHT would be for gifts exceeding the NTB (£325k) and only then if someone had given so much away that there was not enough left in the estate to meet an IHT bill, so an extremely rare  occurrence. 

Your mother can make those gifts with no worry about any tax implication at all.

agree with this.

Although (more for my benefit!) would depravation of assets possibly come into it - or am I over thinking this?

eskbanker

TheMilkmansDad said:

Although (more for my benefit!) would depravation of assets possibly come into it - or am I over thinking this?

Depraved assets conjures up quite an image

Deprivation of assets only becomes a potential issue if the donor seeks some form of state support (care, benefits, etc) after gifting, so if that isn't the case here then there's nothing to be concerned about on that front....

dunstonh

She keeps getting stuck on the £3000 annual tax-free limit, as everything she reads states this limit for gifts.

There is no limit for gifting.   £3000 is the tax free amount as a lump sum when calculating inheritance tax.   if she has excess income, then gifts from income are also exempt from IHT.

 Her total estate is probably worth around £180,000 max as my parents did equity release. 

So IHT is not an issue.    £325,000 individual allowance.    Double it if she was married and her husband's allowance was not used.  Plus, there is a further amount for property.   She appears to have no IHT issue.   So, there is no point worrying about IHT measures.

Albermarle

 She keeps getting stuck on the £3000 annual tax-free limit, as everything she reads states this limit for gifts

It is a very  common misconception, partly because the poor way the issue is reported in the media.

Even if she had enough assets that would make her estate liable  for IHT, she could still make big gifts. The worse that could happen is that if she died within 7 years, the gifts would just be included in the IHT calculation on her estate. So nothing lost as this would have happened anyway if the  gift had not been made.

km1500

Agree with above - her estate is well below the 325k IHT threshold so she can give away as much as she wants with no IHT implications (well, assuming her estate remains the same and she doesn't win a million on premium bonds or something !)

Eco_Miser

Since the estate is below the IHT threshold it doesn't matter, but if it were, £7000 now using last year's allowance (if not used already) and this year's allowance, and £1000 that could attract IHT, and £3000 on or after 6th April using next year's allowance, splitting each between the recipients for fairness. Also nice big Xmas and birthday gifts out of income.

Bigwheels1111

I could be wrong but if she gave them 3k now and 2k in April after the tax year started would it not solve the issue.

Keep_pedalling

Bigwheels1111 said:

I could be wrong but if she gave them 3k now and 2k in April after the tax year started would it not solve the issue.

Except there is no issue to solve.