Relative gifting money

DrBlueBob

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Hi OP, they can gift as much to you as they like in one go now, however the local authorities can request to see historic bank statements if they go into care and they may deem it that they gave you that money to avoid paying for long term care costs. (Though no idea why...)

The seven year rule another poster mentioned refers only to Inheritance Tax (which won’t apply anyway in your in-laws case as it sounds like their joint estate is under the IHT threshold of £650k for a married couple with no main residence).

PM me if you want to go into more detail on your specifics. This is an area that I deal with, no charge of course.
Would I be correct to say that although they may gift as much as they like, anything over a threshold (£3k I think) per annum, the recipients are liable for income tax?
 

DrBlueBob

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Ok so just wondering if anyone has any advice on this.

Mother and father in law both in their 70's and in poor health, live in privately rented accomodation. They have approached my wife asking her if she will open an account in her name that they can then transfer a chunk of their savings into. Just to be clear this isn't a gift to my wife, they are wanting to remove savings in case anything happens to them health wise and the government come after them to pay for their care.

They are asking my wife and i to set up a joint account but for them to have the cards etc.. so in effect it would be their account but in our name and they would continue to add and remove funds as required, looking at £35k+.

To confuse matters they also have a son who is disabled and on benefits, he won't open an account or accept any cash into his account as it would affect his benefits.

We obviously want to help and are getting pressure do put this in place as quickly as possible but i can see this becoming a real mess further down the line.

We are being told that they could "gift £3k per year to both me and my wife each year and also backdate this by one year. As such by January there could be £18k gifted, the trouble being that we would not want this going into our regular account.

Anyone any advice on how to go about this.
My parents in law have been going through this and the financial assessment was a fairly low key affair that involved filling in a questionnaire about what money they had in their account. It does not follow that they will automatically demand access to everything, probably current account and deposit accounts going back over a year would suffice. Technically if you or they hide funds then it is fraud. Additionally be careful that helping them does not compromise your own tax situation.
 

SWP's back

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Would I be correct to say that although they may gift as much as they like, anything over a threshold (£3k I think) per annum, the recipients are liable for income tax?
No, absolutely not.

Not sure why everyone keeps going on about this £3k annual gifting allowance. That’s to do with IHT and even then would only be needed if the estate was over the nil rate band (£325k single parent or £650k married couple - up to £1m with main residence relief).


No income tax on gifts.
 
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flook

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This explains the difference between inheritance tax and income tax on gifts

https://www.shepherdsfriendly.co.uk/your-resource-centre/gifting-money-to-children

SWP's Back is correct that there is no income tax liable on gifts to children, but there are limits on what gifts you can give away to avoid inheritance tax (this is where the 7 year survival rule comes in).

What isn't crystal clear to me is if I bung my daughter £20k (fat chance in case she's reading) and then pop my clogs after 5 years, bearing in mind my age (54) this would be an unexpected demise, so the 20K gift would clearly have been given in good faith and not in an attempt to avoid IHT. Even so I suspect (though I'm not sure) that this gift would then be subject to IHT
 

DrBlueBob

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No, absolutely not.

Not sure why everyone keeps going on about this £3k annual gifting allowance. That’s to do with IHT and even then would only be needed if the estate was over the nil rate band (£325k single parent or £650k married couple - up to £1m with main residence relief).


No income tax on gifts.
Quick Google search and the first entry says exactly what you say. No idea how I got that so wrong. Thanks for making me bloody annoyed with myself!
 

SWP's back

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This explains the difference between inheritance tax and income tax on gifts

https://www.shepherdsfriendly.co.uk/your-resource-centre/gifting-money-to-children

SWP's Back is correct that there is no income tax liable on gifts to children, but there are limits on what gifts you can give away to avoid inheritance tax (this is where the 7 year survival rule comes in).

What isn't crystal clear to me is if I bung my daughter £20k (fat chance in case she's reading) and then pop my clogs after 5 years, bearing in mind my age (54) this would be an unexpected demise, so the 20K gift would clearly have been given in good faith and not in an attempt to avoid IHT. Even so I suspect (though I'm not sure) that this gift would then be subject to IHT
Hi bud, I’m a financial adviser that specialises in tax and trust but I still appreciate you agreeing that I was right.

To answer, absolutely no, your gift wouldn’t be seen as trying to avoid IHT. A gift like that is known as a potential exempt transfer. For the first few years, if you died (assuming you’ve used up your nil rate band by leaving 325/650k - assuming no property takes you over that) then the gift would attract tax of 40% tapering down to 0% if you survived 7 years.

But as I say, gifts only come into it IF your estate is over the nil rate band.
 

flook

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Hi bud, I’m a financial adviser that specialises in tax and trust but I still appreciate you agreeing that I was right.

To answer, absolutely no, your gift wouldn’t be seen as trying to avoid IHT. A gift like that is known as a potential exempt transfer. For the first few years, if you died (assuming you’ve used up your nil rate band by leaving 325/650k - assuming no property takes you over that) then the gift would attract tax of 40% tapering down to 0% if you survived 7 years.

But as I say, gifts only come into it IF your estate is over the nil rate band.

ah thanks for clearing that up, Financial adviser eh? location "by the pool".....not reading anything into that ;)
 

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