Gifting money tax issue

Elmroad82

Hi all,

My mother has kindly offered to gift me 10k… all was going well until her friend said that there is a limit of 3k per year and the 7 year inheritance tax issue. Can anyone explain how the 3k rule works? Am I taxed on the amount over 3k or is my mum? And how do parents manage to gift their kids house deposits if there is a limit if 3k?

Many thanks

Dazed_and_C0nfused

Elmroad82 said:

Hi all,

My mother has kindly offered to gift me 10k… all was going well until her friend said that there is a limit of 3k per year and the 7 year inheritance tax issue. Can anyone explain how the 3k rule works? Am I taxed on the amount over 3k or is my mum? And how do parents manage to gift their kids house deposits if there is a limit if 3k?

Many thanks

Maybe your mother's friend should acquaint themselves with the facts?

Maybe ask them to explain how either the donor or recipient would be taxed at the time the gift is made 🤔

https://www.litrg.org.uk/tax-nic/income-tax/working-out-what-taxable/gifts-and-loans

itsthelittlethings

She can give you as much as she likes but it would be subject to inheritance tax over 3k if she dies within 7 years.

[Deleted User]

itsthelittlethings said:

She can give you as much as she likes but it would be subject to inheritance tax over 3k if she dies within 7 years.

If there had been no gift on the previous year the exemption for that year can also be used. 

Moreover inheritance tax would not arise if the estate fell below the inheritance tax threshold which is a minimum of £325000 and, potentially, up to £1m

Keep_pedalling

itsthelittlethings said:

She can give you as much as she likes but it would be subject to inheritance tax over 3k if she dies within 7 years.

Only if her estate is over her NRBs which could be as high as £1M if she is a widow, but more importantly all of it would be subject to IHT indefinitely if she does not make the gift. 

Albermarle

Elmroad82 said:

Hi all,

My mother has kindly offered to gift me 10k… all was going well until her friend said that there is a limit of 3k per year and the 7 year inheritance tax issue. Can anyone explain how the 3k rule works? Am I taxed on the amount over 3k or is my mum? And how do parents manage to gift their kids house deposits if there is a limit if 3k?

Many thanks

The rules about gifting are very widely misunderstood. Partly because of poor reporting/explaining in parts of the media. So just to confirm the points already made.
There is no gift tax in the UK, anyone can give as much as they like to anyone else. ( so no problem for parents giving large house deposits to offspring for example)

IF the person giving the gift is likely to be liable for inheritance tax when they die ( the large majority are not), and IF that person dies within 7 years of making the gift, then the gift will be counted back in as part of their estate for the purposes of calculating inheritance tax  liability.
This rule is is to stop people giving away large amounts of money when they are at deaths door/very old. 
Only if there are very large amounts of money involved ( hundreds of thousands) could the receiver of the gift find themselves with an inheritance tax bill, but that is very rare.

Grumpy_chap

Elmroad82 said:

her friend said that there is a limit of 3k per year and the 7 year inheritance tax issue. 

This is the trouble with the well-meaning advice services that exists for elder people.  All are giving limited advice, typically out of context, and (as far as I can tell from my Mother's experiences) not always actually advice that the advisor is qualified to give so there are no qualifications or caveats thus making the advice no better than what might be heard from a gentleman at the public house, or person in the supermarket queue, or whatever.

Did the friend mention that gifts exceeding £3k per year may be considered as still in the Estate should the giver die within 7 years, but that the IHT tax can never increase by making a gift?
Did the friend mention any of the other exemptions that can apply to IHT (Estate value below threshold, gifts out of income etc)?

Elmroad82

Thanks! My mum probably won’t go near the IHT limit so that’s not an issue. In short it looks like she can gift what she likes..?

[Deleted User]

Elmroad82 said:

Thanks! My mum probably won’t go near the IHT limit so that’s not an issue. In short it looks like she can gift what she likes..?

Yes - with no implications for IHT whatsoever. 

Yorkie1

Elmroad82 said:

Thanks! My mum probably won’t go near the IHT limit so that’s not an issue. In short it looks like she can gift what she likes..?

But if she is likely to need means-tested benefits, or care funded by local authority, in the short-medium term, then the gift can be treated as if she still had it (which is what Albemarle was referring to at the end of their reply above).

Nothing to do with IHT, but to do with 'deprivation of assets'.