I know I ought to ask a professional but here I am instead. The internet has confused me a bit but I'm sure someone here will know the answer.
I understand the £3k exempt amount, and that it is a total not per child, and is for each parent.
However, if I wanted, could I in theory give my kids say £20k each (i.e. maybe buy them a car, or paying a lump off their mortgage) with no tax liability on any of us except if I die within 7 years? I don't mean by taking a chance. I would want it to be all above board.
Last edited by: smokie on Fri 7 May 21 at 11:50
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"... could I in theory give my kids say £20k each (i.e. maybe buy them a car, or paying a lump off their mortgage) with no tax liability on any of us except if I die within 7 years?"
AIUI, yes. Unless things have changed very recently. And if you do die within seven years, there is a sliding scale of tax payable - the full amount does not kick in.
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I always wondered how HMRC would know that you gave money away within the seven years?
Not everybody keeps accurate records.
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The above is (I believe) technically right.
Pragmatically - if you had (say) £100k in the banks and 4 kids to whom you each give £20k then the reduction in savings may be apparent to your executors when they settle your affairs.
If you had £1m in the banks and the gift were made (say) 3 years earlier, they may not even realise a gift had been made and there would be no tax impact.
Final point is that tax would only be payable if your total estate was taxable. Assuming you left your assets to a surviving spouse (I don't know your personal circumstances) this would be tax free. Only when the spouse died may tax then be payable - this would depend on the size of the estate, dates the gifts were made, exemptions related to family home etc.
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What's to stop you 'buying' a worthless item or service from you children for loads of ££££, then it wouldn't be a gift.
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I'm sure there are ways to drip feed gifts without raising an eyelid. Just need to not overdo it in one go. the inheritance process appears to be based very much on honestly reporting financial aspects.
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You can give away any amount of money at any time to anybody.
It only becomes important on your death if your estate has death duties to pay. Tax free limit is £375K+House.
Death Duties
Anything older than 7 years is free of inheritance no matter how much
Anything given in the last 7 years is liable to
40% - less than a year 40%, Year 2 34%........Year 7 6%, year 8 Zero
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The above applies to inheritance tax.
If you were to gift money/your house to say your son or daughter immediately before you went into care then the Government can recover all the monies/property etc etc as you have deliberately tried to avoid paying for care.
A neighbour's mother died last week - 30 months in a care home burned £200,000 - the daughter paid the balance of her care home fees and there was £5,000 left - the funeral was Wednesday past and it cost £5,000+. The dead woman's husband has cancer & heart issues - his savings and the house will disappear if he was to be in a home for between 4 and 5 years.
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I suggest that you read this
www.gov.uk/inheritance-tax/gifts
and
www.gov.uk/inheritance-tax/passing-on-home
somewhere in the thread FB has suggested an iht nilrate figure of £375k - not sure where he gets that from - or is Scotland different???
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I gave my daughters several £K and told them to use it how they liked for their weddings.
Did I gift it to them, or pay for the weddings (as would be traditional for FOtB)?
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We got in a potential mess with my Mother's estate as we failed to keep records of gifts etc during her final years. She was extraordinarily generous to both my sister and myself and her grandchildren. Helping us when cars needed replacing or when Mrs B was going to Texas for a conference.
On the other hand my sister in particular was helping organise her life, particularly in her last eight years after a fall left her reliant on a frame.
Try as we might we could not identify payments on her bank accounts, some were gifts but others would be her paying for loads of food, household stuff, cleaning and decorating commissioned by my sister.
For a while we thought that, when those sums were taken back into account, we might end up paying a bit of IHT. In the event the solicitor co-executor worked out how to use various exemptions eg for her flat and unused allowance regarding our father who died in 1996 to wangle it down to nil.
But it was lesson in the need for record keeping.
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Thanks all for the solid advice and tips.
The situation hasn't arisen yet but as we're both about to get our State pensions (66 later this year) I'll be having a bit of a drains-up on finances and I want be in a position to "explore avenues".
We have no pensions which pay regularly but I have a couple of fairly reasonably sized SIPPs which have performed OK plus some other savings. For planning purposes I will assume the worst case - that when the time comes the estate is probably going to attract tax but until I've done some sums I can't tell how likely that really is.
Our thought has always been that the kids get the house between them, and if that's all they get they won't have done badly (3 bed semi in the SE). If they get more, good luck to them. However I am completely averse to getting in the situation described above where the money could be claimed back for nursing etc fees, and/or all my hard earned goes on latter years care.
And while I always feel with tax that if you have enough to pay any (or a higher rate) of tax then you're probably better off than many, that doesn't stop me looking for legal ways to reduce the burden!!!
So we're kicking ideas around while I'm still young (and hopefully fit) enough to maybe do something significant for my kids while not leaving unintended/unwanted liabilities, and keeping enough for our needs.
Thanks again.
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Smokie
You might want to get some professional advice and set up a family financial trust. That can cover most situations, I believe. With most of these things, the sooner the better.
That nice Lord Lucan got his monies from a number of family trusts.
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Thanks, that is already in the mix but to me that sounds like something wealthy people do, not ordinary people like me!! :-)
Funnily enough I have a close mate who is a retired IFA who specialised in IHT (and I mean specialised - he had the top quals for it) and has been incredibly helpful over the years but for one reason or another I don't want to go to him just yet with this one - I'd like to have some idea of my direction rather than engage him in a wide-ranging discussion.
Last edited by: smokie on Fri 7 May 21 at 17:15
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I don't think anyone has mentioned the impact of how you hold your house. It will either be joint tenants or tenants in common. This has implications for example if you hold as joint tenants and one of you dies and the other goes into care, the whole value is liable against care fees. If you are tenants in common you can protect the first half so it's not taken into account for fees.
I am sure there are other pros and cons around this so it's another area to consider.
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>> ...
>> However I am completely averse to getting
>> in the situation described above where the money could be claimed back for nursing etc
>> fees, and/or all my hard earned goes on latter years care.
>>
I'm in a similar position. I found this guy had some interesting things to say about having our houses in joint names re care fees liability. Best you hear it from the horse's mouth; he does webinars from time to time.
www.blackstonepartners.com/member/gareth-chalk/
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If your income is more than you require, it is possible gift the excess in the form of regular payments which are not subject to IHT but best to check with a professional if you go down this route.
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We are in the process of rejigging wills and creating a trust with half the property going to the daughters on the death of the first of us with the condition the other is allowed to live in the property until their demise. I believe we are becoming 'Tenants in Common'.
This means that basically half the property is protected from the grab of care home fees.
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I'll have to look at the house ownership thing, I feel I did so long ago but need to confirm.
There is no risk whatsoever that income will exceed requirements!! Only regular income being state pension, once it starts to flow later this year (though I am likely to be deferring it till the next tax year).
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I discovered from my accountant a few years ago that 'gifts out of income' are tax exempt for IHT.
If you can show that your annual regular living expenses are below your annual income then the surplus can be distributed free of IHT if you die within seven years.
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My old Mum gets £80 pw Disability Allowance. Having worked till aged 70, paid her fair share of taxes, I’ve told her not to feel guilty about any money that comes her way...fuel allowance etc etc.
Consequently she has a surfeit of income over expenditure at the moment so pays me £250pcm by DD and out of this I pay for most of her food shopping as she rarely ventures out to shop...decent meat from the butchers, weekly treats from the bakers, books....
She’s got a decent private pension, carried over from when my father died 40 years ago and her other needs are few and far between.
I also do her gardening and general maintenance jobs on her home, and have been told that I need not declare this amount as unearned income for myself, not that I gain anything from it at the of the day.
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Remember that a deceased spouse's IHT is inherited by the surviving spouse.
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Not so fast R.P.
IHT was introduced in 1986, and my father died in 1976. I’m not sure that rule applies as IHT was preceded by Capital Transfer Tax..my old mum is still on top so I shall eventually need to do some investigating. Or seek professional advice as she has £150k in savings which I manage (cash ISA, P Bonds, B society) plus a house currently valued at £330k.
I assume her private pension ceases upon her death with no death benefit payable.
I’m happy to be enlightened if anyone has recent experience of handling this issue.
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>> I’m happy to be enlightened if anyone has recent experience of handling this issue.
A quick Google suggests that transfer of unused nil rate band applies to 'Death Duty' in its previous forms and HMRC provide tables going back to the early 20th Century. There may though be restrictions/problems if first death was before 1975.
Professional advice needed I think.
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Thanks Bromp and R.P. for bringing the matter back into focus.
My father definitely died post 1975 ....I’m simplifying my mums financial affairs as much as possible before she passes. For all I know she may end up spending thousands in nursing home fees at some indeterminate point in future.
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AIUI
Gifts to Charity out of the will are exempt from IT.
Having no direct issue, we intend to use this to keep our joint estate beneath the threshold.
The rest will go to great nieces and nephews. (though they don't need it!)
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As co executor with my bruv for my deceased Aunt, there was something in her will that allowed us to legally make changes to her bequests. It became complicated as her husband had passed away before the introduction of IHT, but we increased her charitable donations considerably thus reducing the IHT to 36% from 40%.
We were left considerably more than anticipated anyway, and our 4 month project to reduce her large flat to bare concrete floors and plaster walls then totally refurb it increased our share of the estate even more.
95% of my estate is going to an extensive number of small charities. Nephews, nieces, friends et al can go whistle. They’re all doing far better than I was at their age..on the housing ladder, expensive holidays, decent cars with homes full of frippery.
Apart from a mega booze up and unlimited beer, nuts n crisps..the only thing I’ll leave them is a hangover.
Last edited by: legacylad on Mon 10 May 21 at 11:50
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Did you incur CGT liability on the increase in value for the refurb of flat?
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>> Did you incur CGT liability on the increase in value for the refurb of flat?
Unlikely the gain was eaten up by doing the works and the management of the refurb himself (wink wink)
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sherlock47...I cannot remember. The flat was pretty much untouched in the 30+ years since my Aunt moved in. An already second hand carpet laid over a nylon carpet, olde wall mounted gas fire, free standing Baby Belling oven, torn lino in the kitchen, ..get the picture.
As it was in a small residential block of 12 with elderly residents, the three selling agents who valued the flat all stated that it would only be saleable to a developer. Therefore I had it valued in that condition for probate purposes, took lots of photos and video of it both before and after condition, and once modernised sold it immediately for £30k more than the probate valuation.
I submitted an invoice for all materials and my hourly labour rate, as instructed by the acting solicitor, and was happy to sell the place, and it kept me happily occupied during a few winter months.
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Be warned that if a shared property is held as 'Tenants in Common ' - where half goes to the children, and effectively shielding one half of the value from the survivor liability for care home fees , transfer of unused nilband cannot be transferred using the simple (for low value) return IHT205.
A full IHT400 return must be made and can get expensive. To give an example the the guidance document runs to 92 pages! Solicitor fees at £300 per hour!
Whilst on a high value estate professional fees maybe cost effective in reducing the IHT payable as knowledge of 'custom and practice' can reduce the liability, when no IHT is due the fees just become a cost to beneficiaries!
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simple (for low value) return IHT205.
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>> A full IHT400 return must be made and can get expensive. To give an
>> example the the guidance document runs to 92 pages! Solicitor fees at £300 per hour!
I did a full IHT400 for my mums estate on my own. And Probate. Its easy as long as you have all the financial documents (IE bank accounts, investment documents, deeds etc etc) in order and to hand. Guidance on the web is good
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Gifting money to children - James Loveless
