Cash gift

marylee

My husband and I would like to buy a flat for our daughter and son next year when hopefully the price will go down. We own our own property and will have our pension to live comfortable. My worst nightware is if I become ill and the children have to sell my house to pay for the care.

We intend to give them the money as a gift and pay for the flat ourselves with our hard earned cash. Where do we stand in case one of us die? I do not want the children to pay taxes on this as it is a gift. What the best way to go about it, please? How much are we allowed to give the children cash as a gift each year? Who will know if I decide to give each of them £10000 now? I would just like to point out, we have worked very hard for this money, and save and watch every penny, and it would not fair to have to pay capital tax on them.

Please advice. Thanks

telly-addict

marylee wrote:

My husband and I would like to buy a flat for our daughter and son next year when hopefully the price will go down. We own our own property and will have our pension to live comfortable. My worst nightware is if I become ill and the children have to sell my house to pay for the care.

We intend to give them the money as a gift and pay for the flat ourselves with our hard earned cash. Where do we stand in case one of us die? I do not want the children to pay taxes on this as it is a gift. What the best way to go about it, please? How much are we allowed to give the children cash as a gift each year? Who will know if I decide to give each of them £10000 now? I would just like to point out, we have worked very hard for this money, and save and watch every penny, and it would not fair to have to pay capital tax on them.

Please advice. Thanks

As you are giving cash as a gift the relevant tax is inheritance tax (IHT) as capital gains tax does not apply to cash gifts.

You can give £3000 in total each year without any tax consequences, this is your annual exemption. If you didn't use the previous year's allowance, it can be carried forward one year.

You can also give £250 to different individuals each year.

If either your son or daughter is getting married you can link the gift to their marriage and a separate gift of £5,000 can be given with no IHT consequences.

The 'who will know' question regarding the gift is relevant if you were to die within 7 years of making it. Your executors/personal representatives will be required to complete a form to the Inland Revenue giving the details of gifts before and on death and to enable them to do this honestly you need to keep accurate records.

Most gifts are 'potentially exempt transfers' that is, if you live for 7 years after the gift there is no tax to pay. Upon the donor's death, an inheritance tax liability can arise, depending on whether the cumulative sum of gifts and the value of the deceased's estate is more than the nil rate band, currently £275,000.

It is possible to buy insurance to pay any IHT that may become due, however on a gift of £10,000 it may be disproportionate to the size of the gift. Worth investigating just as an option, if you think your estate will exceed the nil rate band.

Hope this is of some help.

nlpnlp

I would agree with what telly-addict has said. On the £10,000 gift both you and your husband can gift £3,000 each year. If you did not use your gift last year then you can also use that, so you could give away £6,000 with no IHT implications as can your husband.

Make sure that you and your husband have up to date wills. You should speak to a competent solicitor, but it is usual to structure a will so that you use the £275,000 IHT free limit on the first death of either you or your husband, with the balance going to the surviving spouse. Gifts between spouses is IHT free.

The sooner you give away something you can afford to the sooner it will drop out of your IHT estate, ie. 7 years.

It is worth spending a few £s on advice if it saves you 40% tax when you die.

marylee

Do I inderstand that we can each give the children (adults kids) £3000 each a year. I mean £3000 from my husband and £3000 from me?

Yes, I do have to update our wills, the children are well over 25 yrs now. I am a bit confused, in our will, we are leaving everything to each other. What exactly happen if one of us die? Is our property and assets have to be valued for IHT?

I am going to start donating cash to the children and get them to make a will as well. Thanks for this excellent advice.

telly-addict

marylee wrote:

Do I inderstand that we can each give the children (adults kids) £3000 each a year. I mean £3000 from my husband and £3000 from me?

Yes, I do have to update our wills, the children are well over 25 yrs now. I am a bit confused, in our will, we are leaving everything to each other. What exactly happen if one of us die? Is our property and assets have to be valued for IHT?

I am going to start donating cash to the children and get them to make a will as well. Thanks for this excellent advice.

You each have an annual allowance so yes, you can give £3000 in total each year as can your husband. If you didn't make any gifts last year it could then be £6000 each this year (to 5 April 2006) and then £3000 from 6 April 2006.

You have classic mirror wills that basically waste the nil rate band. This is because (assuming you are both UK born and bred 'domiciled') gifts between spouses are exempt.

It is preferable to allocate part of your estate on death to someone other than your spouse (obviously easier with liquid assets like cash, rather than a house), such as your children, any grandchildren or future grandchildren, so that the second spouse doesn't end up with a huge estate, only one nil rate band and there is 40% tax to pay on the excess.

I think there is a Money Saving article on this somewhere.

When someone dies their executors have to complete an account of the estate to determine whether any IHT is due. If you leave the house (or your share, more likely) to your spouse then there is not going to be any IHT to pay, as it is an exempt transfer as explained above.

marylee

Forgot to mention, they are adults but single. Therefore, we can give each of them £6000 for last year and this year as a gift. Making it a total of £24000 from both of us, £12000 each, am I correct? I am quite lost with all this, am trying to find a bit more.

reddevilled

marylee wrote:

Forgot to mention, they are adults but single. Therefore, we can give each of them £6000 for last year and this year as a gift. Making it a total of £24000 from both of us, £12000 each, am I correct? I am quite lost with all this, am trying to find a bit more.

No, You can give £12,000 in total between you and your husband. The £6,000 (£3,000 per year) is per donor, not per donee.

marylee

reddevilled wrote:

No, You can give £12,000 in total between you and your husband. The £6,000 (£3,000 per year) is per donor, not per donee.

What I have been trying to say is that we have two children. Therefore I assume, we can give each one £6000 from each of us, making it a total of £12000 from both of us per child. We did not make any gifts last year it could then be £6000 each this year (to 5 April 2006) and then £3000 from 6 April 2006. Have I got it wrong again?

telly-addict

marylee wrote:

What I have been trying to say is that we have two children. Therefore I assume, we can give each one £6000 from each of us, making it a total of £12000 from both of us per child. We did not make any gifts last year it could then be £6000 each this year (to 5 April 2006) and then £3000 from 6 April 2006. Have I got it wrong again?

If you have last year's unused annual exemption you can pay £6000 tax free this year to one person, say your daughter. Your husband can do the same for your son. Then, on or after 6 April 2006 you can pay £3000 to one child and your husband £3000 to the other. So it's not each child £6000 from each of you, just from one of you.

marylee

Thanks for this, got it clearly now. Another query, please. We have a joint and separate account. However the current account is in our joint name and this is the account we use to give them cheque. I was told if I give £3000 cash to my daughter, it must be drawn from my own account and not the joint account. Is there any truth in it. I have a flexi account in Nationwide but my husband only has the joint current account and some BS accounts in his own name. Thanks again.

telly-addict

marylee wrote:

Thanks for this, got it clearly now. Another query, please. We have a joint and separate account. However the current account is in our joint name and this is the account we use to give them cheque. I was told if I give £3000 cash to my daughter, it must be drawn from my own account and not the joint account. Is there any truth in it. I have a flexi account in Nationwide but my husband only has the joint current account and some BS accounts in his own name. Thanks again.

The Inland Revenue ( I must start calling them REvenue and Customs or whatever it is now!) assume, unless they have received an instruction to the contrary, that joint accounts are split 50:50 between husband and wife. I would agree that for clarity if the payments can come from a sole account it is 'tidier'.

However, from a practical point of view as you and your husband both have unused annual exemptions, I think you may well be able to use the joint account. I would treat the payments as from you alone, i.e. the cheque from you is signed only by you, and ditto for your husband. Do them in the amounts noted above. I would then document them by keeping a copy of the cheque with a note saying : from Mrs/Mr A to son/daughter using annual exemption for 04/05 and 05/06. There should be no problem attributing it to either you or your husband, but if there were, then a £6000 payment would be considered half yours, half your husbands (because the Revenue consider it half and half, as mentioned above) and the overall effect would be the same. Does that make sense?