Will Mum be taxed

hoskins

Mum is selling her house and downsizing, she wants to give her 2 sons £20,000 each. Will she have to pay tax on the amounts or will her sons have to pay?

telly-addict

When she makes the payments, they will be considered potentially exempt transfers for inheritance tax purposes. If she dies within 7 years of these gifts, then they will be chargeable to IHT. Unless she has documented it otherwise, her sons will be liable for the tax. Otherwise the tax will come out of the estate on death.

I have assumed they are all resident and domiciled (born and bred, simplistically) in the UK. It is possible to take out insurance to cover the IHT or alternatively put aside the tax (40%) in a separate account just in case.

40% is worse case scenario, it depends how much her estate would be, whether it was more than the nil rate band at the time of death, currently £275,000.

Depending on how close the gift was to the date of death, taper relief (not to be confused with capital gains tax taper relief) applies to reduce the rate of tax applicable:

3-4 years between gift and death 80% of 40%
4-5 60% of 40%
and so on
6-7 20% of 40%

The sons will be liable for any interest or other income on the capital after they invest it.

No capital gains tax on cash (sterling).