Help please, is this legal?

BungalowBel

Hi there, hope you can help.

My son and I have had a joint account for over twenty years.  I don't usually touch this account, other than a £500 standing order  that goes in and out monthly to keep to the rules of the account.  My son uses it as his bill-paying account, and he and his partner put an amount in every month for this purpose.

My husband (his father)  and I are selling a flat and intend to give our son the money to pay off his mortgage (around £18000).  The mortgage is solely in my son's name. 

Is there anything wrong, tax related or otherwise, in putting the money into this account  (in the name of myself and my son) and then my son withdrawing it to pay off the mortgage?  Does the rule that says you have to live seven years after giving a large financial gift to avoid any tax, apply?  Are there any other rules which we might be breaking?

Or, because it is a joint account, is my son allowed to spend the money however he wishes?

Thanks in advance.

HappyHarry

BungalowBel said:

Hi there, hope you can help.

My son and I have had a joint account for over twenty years.  I don't usually touch this account, other than a £500 standing order  that goes in and out monthly to keep to the rules of the account.  My son uses it as his bill-paying account, and he and his partner put an amount in every month for this purpose.

My husband (his father)  and I are selling a flat and intend to give our son the money to pay off his mortgage (around £18000).  The mortgage is solely in my son's name. 

Is there anything wrong, tax related or otherwise, in putting the money into this account  (in the name of myself and my son) and then my son withdrawing it to pay off the mortgage?  Does the rule that says you have to live seven years after giving a large financial gift to avoid any tax, apply?  Are there any other rules which we might be breaking?

Or, because it is a joint account, is my son allowed to spend the money however he wishes?

Thanks in advance.

There is nothing wrong or illegal in doing this. You can gift as much to your son (or anyone else) whenever you want to. There is no tax on gifts in the UK.

You may be getting confused with inheritance tax rules which say that, aside from annual exemptions, any gift you make remain as part of your estate for seven years after making the gift.

BungalowBel

HappyHarry said:

BungalowBel said:

Hi there, hope you can help.

My son and I have had a joint account for over twenty years.  I don't usually touch this account, other than a £500 standing order  that goes in and out monthly to keep to the rules of the account.  My son uses it as his bill-paying account, and he and his partner put an amount in every month for this purpose.

My husband (his father)  and I are selling a flat and intend to give our son the money to pay off his mortgage (around £18000).  The mortgage is solely in my son's name. 

Is there anything wrong, tax related or otherwise, in putting the money into this account  (in the name of myself and my son) and then my son withdrawing it to pay off the mortgage?  Does the rule that says you have to live seven years after giving a large financial gift to avoid any tax, apply?  Are there any other rules which we might be breaking?

Or, because it is a joint account, is my son allowed to spend the money however he wishes?

Thanks in advance.

There is nothing wrong or illegal in doing this. You can gift as much to your son (or anyone else) whenever you want to. There is no tax on gifts in the UK.

You may be getting confused with inheritance tax rules which say that, aside from annual exemptions, any gift you make remain as part of your estate for seven years after making the gift.

Ok thank you, I am confused then!  What I was thinking of is, if you gift someone a substantial sum, then you have to live for seven years after giving it to avoid any tax.  (or so I thought).  Can you please explain in more detail what the difference is with what we intend to do, and with what I am thinking of?  Sorry to be a pest.

BungalowBel

The other question  wanted to ask is - my husband said the mortgage company might ask where the money has come from.  Of course it will have been come by legally, and we will be able to provide proof if necessary,  but will it make any difference if it is a gift to our son?  My husband  seems to think it might be classed as money laundering!  I'm sure he is wrong, but just want to check.

BoGoF

The 7 year rule applies to Inheritance Tax only and there would be no tax for your son to pay on any gift.

Is your estate going to be more than the IHT threshold? If not, nothing to worry about.

One other thing to consider is that if this flat wasn't your residence then you could well be liable to Capital Gains Tax.

The mortgage company may well query the source of the funds but as you will no doubt have a paper trail then nothing to worry about.

HappyHarry

BungalowBel said:

HappyHarry said:

BungalowBel said:

Hi there, hope you can help.

My son and I have had a joint account for over twenty years.  I don't usually touch this account, other than a £500 standing order  that goes in and out monthly to keep to the rules of the account.  My son uses it as his bill-paying account, and he and his partner put an amount in every month for this purpose.

My husband (his father)  and I are selling a flat and intend to give our son the money to pay off his mortgage (around £18000).  The mortgage is solely in my son's name. 

Is there anything wrong, tax related or otherwise, in putting the money into this account  (in the name of myself and my son) and then my son withdrawing it to pay off the mortgage?  Does the rule that says you have to live seven years after giving a large financial gift to avoid any tax, apply?  Are there any other rules which we might be breaking?

Or, because it is a joint account, is my son allowed to spend the money however he wishes?

Thanks in advance.

There is nothing wrong or illegal in doing this. You can gift as much to your son (or anyone else) whenever you want to. There is no tax on gifts in the UK.

You may be getting confused with inheritance tax rules which say that, aside from annual exemptions, any gift you make remain as part of your estate for seven years after making the gift.

Ok thank you, I am confused then!  What I was thinking of is, if you gift someone a substantial sum, then you have to live for seven years after giving it to avoid any tax.  (or so I thought).  Can you please explain in more detail what the difference is with what we intend to do, and with what I am thinking of?  Sorry to be a pest.

If you make a gift to anyone it remains as part of your estate for seven years for inheritance tax purposes. This is to stop people gifting everything away on their deathbed to avoid inheritance tax.

It is probably easier to use a couple of examples.

1. If you had assets of £1,500,000 and gave away £250,000 (after annual exemptions) now, then if you were to die within seven years, your estate will consist of your remaining assets of £1,250,000 plus the £250,000 gift which would total £1,500,000. Inheritance tax would be applied to this estate of £1,500,000. 

2. If you had assets of £1,500,000 and gave away £250,000 (after annual exemptions) now, then if you were to die after eight years, your estate will consist of your remaining assets of £1,250,000 only and inheritance tax would be applied to this estate of £1,250,000

3. If you had assets of £300,000 and gave away £100,000 (after annual exemptions) then it would not matter how long you lived as your total estate would be less than the inheritance tax Nil Rate Band and so no inheritance tax would be due at all.

BungalowBel

Thank you for your replies, they have been very helpful.   The seven year-inheritance tax thing was what I was thinking of.  I don't know whether our estate will be above the IHT threshold.  We have a bungalow worth around £220k plus (after selling the flat and spending  some of the money) around £150k in savings.

I suppose we will both have to arrange not to die for seven years!  (we are 74 and 75).  

Thank you all for our help, I think we will do it anyway.  We will be liable for CGT but we knew that.

Please can someone answer my husband's question about money laundering, just so I can set his mind at rest?  Thanks!

BoGoF

BungalowBel said:

Thank you for your replies.  The seven year-inheritance tax thing was what I was thinking of.  I don't know whether our estate will be above the IHT threshold.  We have a bungalow worth around £220k plus (after selling the flat and spending  some of the money) around £150k in savings.

I suppose we will both have to arrange not to die for seven years!  (we are 74 and 75).  

Thank you all for our help, I think we will do it anyway.

Please can someone answer my husband's question about money laundering, just so I can set his mind at rest?  Thanks!

As I said above - don't forget about capital gains tax

And the money laundering thing - it may or may not be a question the mortgage company ask but if you have a paper trail showing the sale and transfer of funds to your son it won't be an issue.

HappyHarry

BungalowBel said:

The other question  wanted to ask is - my husband said the mortgage company might ask where the money has come from.  Of course it will have been come by legally, and we will be able to provide proof if necessary,  but will it make any difference if it is a gift to our son?  My husband  seems to think it might be classed as money laundering!  I'm sure he is wrong, but just want to check.

It is certainly not money laundering.

The mortgage company may well ask where the money has come from and you will be able to demonstrate where it has come from, so no concerns there.

The mortgage company may well ask you and your husband to sign a legal document stating that this is a gift to your son rather than a loan.

HappyHarry

BungalowBel said:

Thank you for your replies.  The seven year-inheritance tax thing was what I was thinking of.  I don't know whether our estate will be above the IHT threshold.  We have a bungalow worth around £220k plus (after selling the flat and spending  some of the money) around £150k in savings.

I suppose we will both have to arrange not to die for seven years!  (we are 74 and 75).  

Thank you all for our help, I think we will do it anyway.  We will be liable for CGT but we knew that.

Please can someone answer my husband's question about money laundering, just so I can set his mind at rest?  Thanks!

From those figures your estate will be free of inheritance tax, so you have no concerns on that score.

Your Nil Rate Band = £325,000
Husband's Nil Rate Band = £325,000

So you will get £650,000 just from these two Nil Rate Bands which covers your estate.

Your estate may also benefit from up to £220,000 in Residence Nil Rate Bands depending on whether or not you live in the flat and who it is owned by.

BungalowBel

Thank you all, that is so helpful, much appreciated.