£50,000 cash gift from friend. IHT implications?

greenlad09

Hello. We have a family friend who would like to give us £50,000 towards the renovations of our house. My only worry is what are the chances of me having to pay inheritance tax. I am aware of the 7 year rule. All I can think about is if we end up with a huge amount of tax to pay in the future as will won't be in a position to pay it. Is it worth the risk? 

DE_612183

I'm not 100% sure - but wouldn't any tax due come out of the estate rather than you personally?

SiliconChip

As @DE_612183 says, responsibility for IHT in the vast majority of cases lies with the estate of the deceased, so the person making the gift is the one that needs to be aware of the potential impact on their estate should they die before the gift drops out of consideration. I suggest that the OP mentions this to the family friend to ensure they are already aware of possible IHT implications, and if necessary to reduce the amount of the gift and retain money within the estate to cover any IHT that might be due.

Sea_Shell

greenlad09 said:

Hello. We have a family friend who would like to give us £50,000 towards the renovations of our house. My only worry is what are the chances of me having to pay inheritance tax. I am aware of the 7 year rule. All I can think about is if we end up with a huge amount of tax to pay in the future as will won't be in a position to pay it. Is it worth the risk? 

Are you worried about their estate being liable or your own?

Two different things.


Are there any "strings" attached to this gift.  What's in it for them?  Or are they just being extremely generous?

Hoenir

Tax liability is your family friend's. 

[Deleted User]

greenlad09 said:

Hello. We have a family friend who would like to give us £50,000 towards the renovations of our house. My only worry is what are the chances of me having to pay inheritance tax. I am aware of the 7 year rule. All I can think about is if we end up with a huge amount of tax to pay in the future as will won't be in a position to pay it. Is it worth the risk? 

Why do you think that YOU would pay inheritance tax on this gift? The ‘seven year rule’ applies to the estate of the person giving the gift, not to you.

 If you feel that you (meaning your estate) won’t be in a position to pay when you pass away one presumes that your estate is well below £1m. 

In this case IHT will not be an issue. 

Bookworm105

@ [Deleted User]

The OP is correct to raise the issue of potential liability on themselves for ending up having to pay IHT on the gift. All the above responses saying liability rests only on the estate are technically incorrect. 

yes the 7 year rules covers "most" scenarios, but crucially it depends on the cumulative total money given away over those 7 years. 
How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts - GOV.UK (www.gov.uk)
"Any Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift"

Obviously that is outside the control of the recipient and with the donor dead there is not a lot a recipient can do if that threshold had been crossed other than keep in touch prior to death and (intrusively) ask how much the donor has given away in total on a rolling basis. A somewhat brave question to ask of anyone other than direct family and pointless if the recipient cannot refund the gift to the donor thus removing their own liability !

Work out Inheritance Tax due on gifts - GOV.UK (www.gov.uk)
"Inheritance Tax is only due if the person who died gave away more than £325,000 in gifts in the 7 years before they died. In this situation, the person who gets a gift in these last 7 years will have to pay the Tax."

Jeremy535897

"Any Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift."

What you need to know from your friend, then, is whether they have already made non-exempt gifts of at least £275,000 in the 7 years prior to the gift to you. Only then could there ever be any inheritance tax due on the gift to you.
https://www.gov.uk/inheritance-tax/gifts

Albermarle

Bookworm105 said:

@ [Deleted User]

The OP is correct to raise the issue of potential liability on themselves for ending up having to pay IHT on the gift. All the above responses saying liability rests only on the estate are technically incorrect. 

yes the 7 year rules covers "most" scenarios, but crucially it depends on the cumulative total money given away over those 7 years. 
How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts - GOV.UK (www.gov.uk)
"Any Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift"

Obviously that is outside the control of the recipient and with the donor dead there is not a lot a recipient can do if that threshold had been crossed other than keep in touch prior to death and (intrusively) ask how much the donor has given away in total on a rolling basis. A somewhat brave question to ask of anyone other than direct family and pointless if the recipient cannot refund the gift to the donor thus removing their own liability !

Work out Inheritance Tax due on gifts - GOV.UK (www.gov.uk)
"Inheritance Tax is only due if the person who died gave away more than £325,000 in gifts in the 7 years before they died. In this situation, the person who gets a gift in these last 7 years will have to pay the Tax."

When this has been mentioned before, posters have commented that in practice recipients rarely have to pay any IHT, even if technically they may owe some. This is because the estate usually pays, and HMRC does not care less where the money comes from as long as they get what is due.
I have no idea though how true this really is.

Sea_Shell

I suppose the receipent of a substantial gift could be liable to pay (some) IHT if the deceased liquidated all their assets and gifted it all away shortly before they died?

Effectively leaving an insolvent estate.

Could HMRC go after everyone given something, and see where the "mud sticks"?


Unlikely, I admit, but possible? 

Keep_pedalling

The only time recipients of gifts are going to be on the hook for IHT is when the giver has given away more than their NRB and there is insufficient money left in the estate to pay the tax bill.