Parents looking to gift me a deposit contribution towards my next house

aliasmt8

Hi all.

I have just had an offer accepted on a property and as the title says, my parents have very kindly agreed to pony up some of the dough. Obviously we are trying to do this as tax efficiently as possible. So far, my admittedly limited research has come up with 3 options:

1) A gift of £50k with all of the related possible tax implications that go with that.

2) A “gifted deposit” which seems to be no different to 1)

3) They invest the £50k as part owners but there would be a Stamp duty sum payable. Is this on just the sum invested or the full property value?

What Is my / their best option?

Many thanks all

Hoenir

There's nothing to stop you gifting money back to your parents, 

Are you obtaining a mortgage? 

aliasmt8

Thanks so much for the swift response. So I can borrow what I need via mortgage / equity but they have just sold a place in Spain and want to contribute. They are in their mid 70s and have had a few health conditions over the last few years so they are fearful of the dreaded 7 year IHT rule if things go south.

aliasmt8

From what I can gather they can only put in 12k as gifts before the IHT could theoretically bite. Believe it or not, THAT is their worst fear 

user1977

aliasmt8 said:

From what I can gather they can only put in 12k as gifts before the IHT could theoretically bite. Believe it or not, THAT is their worst fear 

I think they/you misunderstand. Making a lifetime gift cannot make their IHT position any worse than them still having the money when they die, it just means that potentially some or all of it will be taxed as if it were still part of their estate if they die within 7 years after the gift.

Do they actually want to "invest" in the sense of being able to get their money back? If so then it will be more difficult to find a mortgage lender who will accept that, generally they want a no-strings-attached gift.

HappyHarry

If they make the gift, then you are saying IHT might bite if they don’t survive the seven years.

if they don’t make the gift now, then surely IHT will definitely bite if they do or if they don’t survive the seven years. 

Keep_pedalling

aliasmt8 said:

From what I can gather they can only put in 12k as gifts before the IHT could theoretically bite. Believe it or not, THAT is their worst fear 

That is a total misconception. Gifting NEVER has a negative impact on IHT. If neither of them has used up this and last year’s annual allowances and they gift you £50k then yes £12k of that gift falls out of their estate immediately and the rest of it is treated as a potentially exempt transfer (PET) and is subject to the 7 year rule so won’t fall out of their estates for 7 years. If they did not make that gift then it would never fall out of their estate so it would be silly not to make the gift if you are trying to reduce your IHT liability.

If they own their own house and have less than £1M in assets then they are unlikely to have any IHT liability to avoid.

Options 1 & 2 are the same thing and as explained above there is no negative tax implications to doing that.

Options 3 means an extra 5% additional SDLT and a potential CGT liability for your parents down the road. If their estate is in IHT territory then it does not help reduce that liability so this is the worst option as far as tax efficiency is concerned. 

Brie

1 & 2 - yes there's the potential of IHT but that would be on a reducing scale over the 7 years.  And yes there would be a £12k max to be gifted assuming it's £3k from mom and the same for dad and for last tax year and this tax year.  So here's a thought.  If they have a good income themselves and you can actually afford the mortgage without their assistance maybe they could give you the £12k now and then for the next 6 tax year give you another £3k each.  That's £48k with no tax implications.  You could use the extra in the coming years to overpay on your mortgage.  Win-win!

3 - complicated.  Other than the stamp duty issue (no idea the answer on that) it may cause issues with your mortgage.  When we bought a place with some money from MiL our mortgage provider wanted to ensure it was a authentic gift and that MiL wasn't expecting to have a share of the property.  Easy enough to provide a letter from her stating outright that it was a gift and she didn't have an interest in the property (this despite the fact that we were buying so she could live with us).

aliasmt8

Thank you so much guys. I am admittedly clueless but the way that you have explained it makes it very clear. Really appreciate your help and advice 👍

Keep_pedalling

Brie said:

1 & 2 - yes there's the potential of IHT but that would be on a reducing scale over the 7 years.  And yes there would be a £12k max to be gifted assuming it's £3k from mom and the same for dad and for last tax year and this tax year.  So here's a thought.  If they have a good income themselves and you can actually afford the mortgage without their assistance maybe they could give you the £12k now and then for the next 6 tax year give you another £3k each.  That's £48k with no tax implications.  You could use the extra in the coming years to overpay on your mortgage.  Win-win!

If the OPs parents actually have an IHT liability the better option is to make the £50k gift, and keep using their annual exemptions in future years, if their estate is well out of IHT territory then the exercise is rather pointless.

Another misconception here is that the gift is subject to taper relief, it is not that only applies for gifts in excess of your NRB. For joint gifts this would need to exceed £650k. 

aliasmt8

Their estate is probably only £300k max if that helps