Reply With QuoteRight now - he could give her £3,000 tax free. The rest is taxable - I'm sure.
My father in law has given my wife a gift of £40,000. I said that this looked like a good way to get a big tax bill, but he did it anyway.
As I understand it, it will be tax free if he lives for 7 years, but how does it actually work? Step one, I presume, is to include it in this year's tax return, but what happens if he dies? How will the executor know to include this sum in his estate? Is tax only liable when he dies, and not before?
Right now - he could give her £3,000 tax free. The rest is taxable - I'm sure.
She better hope he lives another 7. If his estate will be less than £325k it won’t matter though.
As I understand it provided he isn’t divorced then the inheritance tax threshold is double.
Last edited by bobdog; 2nd November 2017 at 23:03.
As usual there are a couple of “pub pundit” replies. This is one of my areas of professional specialism.Originally Posted by hogthrob
1. I recommend documenting the gift. I assume the gift was made by bank transfer or cheque, so bank records will show when it was made. Nothing formal is needed, a brief email exchange is sufficient just to confirm the payment was a gift.
2. Nothing is reportable to HMRC now. No tax is payable now.
3. If your FiL dies within seven years of the gift, some or all of it will be chargeable to inheritance tax. The tax charged may be at 0% on some or all of the gift and at 40% on some or all of the gift. What is chargeable and at what rate will depend on your FiL’s estate value, terms of his will, and history of making gifts in the years prior to his death. A full analysis would be quite complex and isn’t necessary here and now.
It has nothing to do with the recipient's tax return. It is not income. HMRC do not need to know.
The gift remains part of his estate, for the next 7 years.
His estate will be taxable as and when he dies. And we all do so sooner or later I'm afraid.
If he dies within 7 years, the gift may be taxable, depending on the value of his estate.
If the estate is worth less than 325K, including the gift, there is no tax to pay come what may. Well that's not strictly true, it is taxed, just at 0%.
There is an additional allowance above the 325K for a residential property owned by him, which this tax year is a further allowance of 100K. This rises a further 25K/ year for the next 3 tax years, ie will become 175K in 2020/21. That would mean a property worth 500K (if the only thing in an estate) would be passed on at 0%.
As far as the "7 years" goes, it relates to the time during which the 40K gift is considered part of the estate.
If, as above, it falls within the 325K (+ any additional threshold [the property Allowance]) it's at 0% regardless.
If it's outside of that, ie a reasonable estate, then for 3 years IHT is payable at 40%, ie it's considered part of the estate for tax purposes and is just added on top of what's left, to reduce the risk of people giving everything away on their death bed and avoiding tax.
For the following 4 years there's a sliding scale of taxable rates, see the "7 year rule" here:
https://www.gov.uk/inheritance-tax/gifts
Now you can gift 3K/ person / year without it coming in to play, and if no gift was made last year that can carry forward, so 6K can be gifted in year without any of this mattering
See "Exempted gifts" in the link above.
An outright gift is not “considered part of the estate”. A potentially exempt transfer is a transfer of value presumed exempt when made but which becomes chargeable if the donor does within seven years.
And the tapering rates for gifts made between 3-7 years before death only reduce the tax where the gift is large enough for tax to be payable.
See my comment re blokes in pubs...
Last edited by draftsmann; 2nd November 2017 at 23:58.
I don't think the OP has been asked how much his FIL earns / spends in the period the gift was made.
As I understand it, if the answer (including the gift) pleases Mr Micawber then much of the above, whilst correct, isn't relevant
Cheers
Pub Pundit
The honourable gentleman with the pewter tankard refers, I think, to the exemption for gifts made as normal expenditure out of surplus income. For that exemption to apply there must be a pattern of regular gifts or at least (in the event of premature death) evidence of intent to make regular gifts.I don't think the OP has been asked how much his FIL earns / spends in the period the gift was made.
As I understand it, if the answer (including the gift) pleases Mr Micawber then much of the above, whilst correct, isn't relevant
Cheers
Pub Pundit
In this instance, it appears that the gift in question is, as they say down Mrs Miggins’ alley, a “one off”. Accordingly I must advise the splendidly sideburned cove beside the tavern’s fireplace that the said exemption, regrettably, will not apply.
I thought George Osborne had decreed whilst Chancellor that the inheritence tax threshold would rise to £1m or did some Tory scumbag overturn that.
Well, it’s sort-of being introduced but by introducing an additional “residence nil rate band” with some quite convoluted qualifying rules.
Around 30 years ago the IHT legislation was the slimmest volume on the bookshelf compared to the other direct taxes so I said to myself “I’ll learn that one back to front”. Since then IHT law has multiplied in Byzantine complexity.
My wife gave a £20 K gift to our daughter which she doesn’t want to touch until she is ready to buy a house. Because she has this money in her account she can’t claim universal credit as she has more than £16K savings. She is on minimum wage as a career so could she ‘ give the gift back’ to allow her to claim please. We would be grateful for any advice please. Thanks
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If it was a loan instead of a gift...
Don't think so, that's deprivation of assets, so would still get no UC. Best bet would be to live off the money for a bit until she gets below £16k
Probably a question better asked over on MSE
http://forums.moneysavingexpert.com/...play.php?f=139
Thanks all
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