Inheritance tax - gifting money for extension works for disabled granddaughter

KennyH1

My daughter has a progressive disability and my parents want to help us adapt the house for her. They are concerned about us having to pay inheritance tax on any money that they gift us if they die within 7 years. They know about the £3000 yearly gift but want to help more than that as the building works / adaptions will run in to the tens of thousands. 

I'm aware they can make gifts if the payments go towards the likes of private school fees, weddings and gifts out of surplus income etc which would be exempt from inheritance tax. Is there some way they can make regular payments to help with the additional mortgage payments or could they pay for some of the building works direct to the builder without these payments being liable for Inheritance Tax?

Brie

They could make regular payments if those come from their normal income.

from the gov uk site:

You can make regular payments to another person, for example to help with their living costs. There’s no limit to how much you can give tax free, as long as:

• you can afford the payments after meeting your usual living costs
• you pay from your regular monthly income

And there's taper relief where after a few years that amount of a large lump would be less impacted by IHT.

Years between gift and death	Rate of tax on the gift
3 to 4 years	32%
4 to 5 years	24%
5 to 6 years	16%
6 to 7 years	8%
7 or more	0%

It's all here....How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts - GOV.UK

Keep_pedalling

First off if they gift over their annual exemptions, it NEVER increases the amount of IHT that would have to be paid, secondly you don’t pay the IHT their estates do, so it is not a reason not to make the gift. 

Gifts from excess income only reduce the amount of growth in your IHT burden so if their joint net worth is already over £1M they should be looking at larger one off gift as well as gifts from excess income. 

Paying for school fees is not exempt in its own right.

Keep_pedalling

On a seperate note do you and your parents have wills in place?

Keep_pedalling

Brie said:

They could make regular payments if those come from their normal income.

from the gov uk site:

You can make regular payments to another person, for example to help with their living costs. There’s no limit to how much you can give tax free, as long as:

• you can afford the payments after meeting your usual living costs
• you pay from your regular monthly income

And there's taper relief where after a few years that amount of a large lump would be less impacted by IHT.

Years between gift and death	Rate of tax on the gift
3 to 4 years	32%
4 to 5 years	24%
5 to 6 years	16%
6 to 7 years	8%
7 or more	0%

It's all here....How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts - GOV.UK

Very few people get taper relief as it only applies to gifts over £325k (£650k for a joint gift), If I gift £400K away only £75K of that is subject to taper relief. 

KennyH1

Keep_pedalling said:

On a seperate note do you and your parents have wills in place?

My parents have a will. At the moment myself and my wife do not.

Keep_pedalling

KennyH1 said:

Keep_pedalling said:

On a seperate note do you and your parents have wills in place?

My parents have a will. At the moment myself and my wife do not.

Something you really should looking at doing especially as it is probably appropriate to trusts built into them for your daughter. The same applies to the grandparents if they are leaving anything significant  to her. 

Albermarle

Keep_pedalling said:

KennyH1 said:

Keep_pedalling said:

On a seperate note do you and your parents have wills in place?

My parents have a will. At the moment myself and my wife do not.

Something you really should looking at doing especially as it is probably appropriate to trusts built into them for your daughter. The same applies to the grandparents if they are leaving anything significant  to her. 

This depends to some extent on form of the disability.
If it is not affecting her cognitive abilities and she will be able to handle money OK, then a trust is less necessary I would think. 

Keep_pedalling

Albermarle said:

Keep_pedalling said:

KennyH1 said:

Keep_pedalling said:

On a seperate note do you and your parents have wills in place?

My parents have a will. At the moment myself and my wife do not.

Something you really should looking at doing especially as it is probably appropriate to trusts built into them for your daughter. The same applies to the grandparents if they are leaving anything significant  to her. 

This depends to some extent on form of the disability.
If it is not affecting her cognitive abilities and she will be able to handle money OK, then a trust is less necessary I would think. 

It is not just that, an outright bequest is going to affect any benefits that may otherwise be claimable. A vulnerable persons trust is also treated more favourable than other types of discretionary trusts for taxation purposes. 

Albermarle

Brie said:

They could make regular payments if those come from their normal income.

from the gov uk site:

You can make regular payments to another person, for example to help with their living costs. There’s no limit to how much you can give tax free, as long as:

• you can afford the payments after meeting your usual living costs
• you pay from your regular monthly income

And there's taper relief where after a few years that amount of a large lump would be less impacted by IHT.

Years between gift and death	Rate of tax on the gift
3 to 4 years	32%
4 to 5 years	24%
5 to 6 years	16%
6 to 7 years	8%
7 or more	0%

It's all here....How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts - GOV.UK

The Gov.UK info is written in a confusing way.

It should be rewritten as follows ( or something similar) 

The 7 year rule

No tax is due on any gifts you give if you live for 7 years after giving them - unless the gift is part of a trust. This is known as the 7 year rule.

If you die within 7 years of giving a gift and there’s Inheritance Tax to pay on it, the amount of tax due after your death depends on when you gave it., the full amount of the gift will be counted back into your estate.

There is the possibility of taper relief in some cases, but Taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold. In this case Gifts given 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.

Ms_Chocaholic

Can your parents not pay the builder direct?