Inheritance Tax and gifting money to children

isey235

Hi All

I have a question about gifting money to children and tax.

Are cash gifts taxable no matter what ?

I have googled it and an annual max figure of £3k keeps popping up. Does that only apply if the estate on death is worth more than £325k ?

Thanks

Keep_pedalling

There is no gift tax in the UK so the answer to your first question is no.

The £3000 is an annual exemption but is not a limit, you can gift as much as you like but gifts above that value remain within your estate for 7 years for IHT purposes.

isey235

Keep_pedalling said:

There is no gift tax in the UK so the answer to your first question is no.

The £3000 is an annual exemption but is not a limit, you can gift as much as you like but gifts above that value remain within your estate for 7 years for IHT purposes.

Thank you for your response

So am i correct in thinking that if an estate is worth less than the IHT threshold of £325k when somebody dies, there would be nothing to pay on any gifts given prior ?

Keep_pedalling

No there would not be any tax even if the estate was subject to IHT as that would still come out of the residuary estate unless someone had given so much away there was not enough left to pay the tax.

CalJo99

remember that that £3k per year can be carried over for a year, if you can't afford to make that amount of gift in one tax year. So if last year you couldn't afford it, then this year you can now give £6k.

Although it's a seven year rule, if you manage to survive for 5 years it tapers to a much smaller amount of tax, so definitely worth it for that reason.

If you gift property there is no stamp duty - but if it's not your main dwelling house then capital gains will be payable,.

If it is your main residence unless you live in a property worth £325k plus the £175k 'uplift' (for a single/divorced parent) (or twice that if married/widowed), it's IHT exempt anyway, so no point gifting it. (You also run into problems if you gift your home, then go on living in it - residuary benefit I think it is?? Tax man doesn't like it!) (what does he like, sigh????)(loads of tax money, that's what!)

CalJo99

Remember too, if you gift your home in order that it can't be forced to be sold if you want to claim council care when old with dementia etc, then it becomes 'deprivation of assets'. Councils can then seize the property, even from the children, and force a sale to make you pay your own care home fees....

From what I know (??) there is no seven year rule either. It's question of 'purpose' - did you deliberately give away your assets to avoid paying your care home fees? If so, the council can seize it back (or get its value back).

It's a 'vague' situation, and needs tightening up- ie, with the equivalent of a seven year rule.

CalJo99

Remember, too, you can give your children any amount of money if it comes from your INCOME, not your capital assets AND that gift does not reduce your standard of living significantly.

Keep_pedalling

CalJo99 said:

Although it's a seven year rule, if you manage to survive for 5 years it tapers to a much smaller amount of tax, so definitely worth it for that reason.

Taper relief only applies to gifts over the NRB (£325k) and onlt to the portion above that amount. It also kicks in after 3 years rather than 5.

Keep_pedalling

CalJo99 said:

Remember, too, you can give your children any amount of money if it comes from your INCOME, not your capital assets AND that gift does not reduce your standard of living significantly.

To be pedantic it has to come from excess income. Anyone planning to use this exemption needs to keep 7 years of income and expenditure records otherwise it is very difficult for an executor to actually claim it.