Giving child lump sum and iht

gorgeousme

I want to give my child a lump sum from my earnings. I currently save my salary in an interest earning account and I plan to transfer the balance to my child for a house. As it comes from my earnings, will IHT still be liable if I die within 7 years?

Keep_pedalling

This sounds like a gift from savings rather than from excess income, so yes it will take 7 years for the gift to fall out of your estate. Whether there will be an IHT liability is going to be dependant on a number of factors. What is your current network worth, marital status, and do you own your own home?

silvercar

If you want it to fall under the regular gifts from income, it would look more transparent to give regularly. Saving up the money and giving it as one lump sum looks like a single gift. 

400ixl

As above, a regular gift from income has to be exactly that. A clear transfer of funds from disposable income given as the income comes in.

gorgeousme

Am I correct in saying that it is subject to iht as I save it? However, if I drip feed the monies to my child monthly then it will be free of any tax? I don’t need that money as my partner pays the bills so my lifestyle will not reduce.

Keep_pedalling

gorgeousme said:

Am I correct in saying that it is subject to iht as I save it? However, if I drip feed the monies to my child monthly then it will be free of any tax? I don’t need that money as my partner pays the bills so my lifestyle will not reduce.

No, gifts from excess income need to be backed up by records of both your income and expenditure that prove you have excess income. Have a look at form IHT 403 to see what an executor needs to provide on an IHT return. 

https://assets.publishing.service.gov.uk/media/5f60b44cd3bf7f7234487bf0/IHT403-05-20.pdf

Whether this is important or not in your case we don’t know because we know nothing about your net wealth or your marital status. Gifting never makes your IHT liability worse, and if you are healthy you can always cover any IHT that comes about through an early demise through term life insurance. 

DRS1

How much are you planning to give away?  If it is most of the cost of a house it will take quite a while to "drip feed" it to your child.  Is there much risk of you dying in the next 7 years?  If not just get on and give them what you want now.  The sooner you give it the sooner the clock starts ticking.

DRS1

In case you are googling anything I think @Keep_pedalling means TERM life insurance.

Keep_pedalling

DRS1 said:

In case you are googling anything I think @Keep_pedalling means TERM life insurance.

Whoops! Unfortunate typo.

silvercar

Keep_pedalling said:

gorgeousme said:

Am I correct in saying that it is subject to iht as I save it? However, if I drip feed the monies to my child monthly then it will be free of any tax? I don’t need that money as my partner pays the bills so my lifestyle will not reduce.

No, gifts from excess income need to be backed up by records of both your income and expenditure that prove you have excess income. Have a look at form IHT 403 to see what an executor needs to provide on an IHT return. 

https://assets.publishing.service.gov.uk/media/5f60b44cd3bf7f7234487bf0/IHT403-05-20.pdf

Whether this is important or not in your case we don’t know because we know nothing about your net wealth or your marital status. Gifting never makes your IHT liability worse, and if you are healthy you can always cover any IHT that comes about through an early demise through term life insurance. 

I can see on the last page of that form the need to prove that it is out of income, but can’t see anywhere do show it is a regular gift. You could show the same amount in a succession of tax years, but X per month in a single tax year wouldn’t show as anything more than a total for the one tax year.

fuzzzzy

400ixl said:

As above, a regular gift from income has to be exactly that. A clear transfer of funds from disposable income given as the income comes in.

I agree it is more obviously a gift from income if done that way, but I don't see what is wrong with setting up a regular pattern of giving one larger gift at xmas, or the end of the tax year say, as long as you can show that all your outgoings and the gift are covered by your yearly income.