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  • Inheritance tax/gifts and much confusion..
  • MartynS
    Full Member

    Looking for a bit of clarity on something I know little about..

    what is the possible inheritance tax liability if parents want to gift a sibling £10.000?

    my reading is that there is no immediate tax issue however if both parents pass away between 0 and 7 years after gifting the £10.000 gift will have to be included in the probate/estate calculations and if that comes to more than you £325.000 then anything over that figure will be taxed at 40%

    I also presume the £325,000 figure is for the whole estate and not per beneficiary?

    say this money was to be used for a car, would the £10.000 contribution still count if the funds transfer were made from parent to garage, the parents bought the car and gave to sibling?

    would it make any difference if the gift was cash (and I’m pretty certain I know just how problematic taking out £10.000 in cash is..)

    thank you in advance.. I don’t really understand all this and we are trying to make sure we may not fall foul of the law..

    theotherjonv
    Full Member

    For most estates you can bundle allowances across spuses and there’s also a £175K housing allowance each

    Not sure exactly on the 7 year rule but what you say sounds vaguely right.

    Is the inheritance tax threshold really £1 million?

    thegeneralist
    Free Member

    .. I don’t really understand all this and we are trying to make sure we may not fall foul of can get around the law..

    Dude, really, get a grip. Is a million pounds inheritance tax free allowance not anough?

    ampthill
    Full Member

    What my dad does is write a letter stating that the money is a genuine gift. Apparently if the car is a genuine gift then the tax doesn’t apply. What they are taxing is using this as a way of avoiding inheritance tax. If some one genuinely wants to buy their kids a car that isn’t necessarily taxed. If the cash is used to hide the transaction then that’s just bracing the rules

    I think it’s tapering scale. So if they die after 5 years the liability is 5/7 off the tax

    Finally if the person getting the car is the beneficiary of the estate what’s the issue. Pay the £4000 tax out of the £325,0000 you have just inherited

    slackboy
    Full Member

    Birthday or Christmas gifts you give from your regular income are exempt from Inheritance Tax.

    Is it a birthday present?

    MartynS
    Full Member

    Dude, really, get a grip. Is a million pounds inheritance tax free allowance not enough

    dude.. as i VERY clearly stated I believe the threshold is £325.000. Nowhere have i seen £1m mentioned

    Also not getting around the law.. making sure we are fully aware of what the law is to make sure we don’t fall foul of it.

    Thank you for your valuable contribution though.

    stealthcat
    Full Member

    https://www.gov.uk/inheritance-tax/gifts

    Doesn’t matter if it’s cash or goods; 10k would still be included in the estate value if both parents die within 3 years. After that, it’s a sliding scale.

    theotherjonv
    Full Member

    Sorry, link broke in my post

    £1M is correct in a lot of cases when you look at reality of most substantial inheritance cases

    Is the inheritance tax threshold really £1 million?

    intheborders
    Free Member

    Dad withdraws £10k from his bank (or just withdraws it over a period from ATM’s) and gives it to child, who buys a car.

    End of story.

    MartynS
    Full Member

    Thanks to most of you.. very helpful.

    BearBack
    Free Member

    gave to sibling

    As in a gift?

    There are allowances for the value of birthday gifts, annual allowances to childred, grand children, wedding gifts etc.

    If you need 10k for a car, it’ll take you 3.3 years of allowable gifts if you wish to avoid tax legally.

    robertajobb
    Full Member

    Just got to get the dad to tell the bank that the £10k withdrawal is to pay cash in hand for a once in a lifetime coke + hookers fortnight in Amsterdam that he’d always promised himself.

    thecaptain
    Free Member

    “Genuine gift” is irrelevant. Any gift over 3k per year (this is the total per giver not per recipient) is potentially taxable if the giver dies inside 7 years.

    The IHT threshold for two parents assuming they own a house worth 350k or more and pass it to direct descendants, is a round million as can easily be confirmed by googling. That’s 325k per person as basic exemption and 175k per person as additional residential property exemption. The exemptions can be carried over from one spouse to the other making a million on death of second spouse.

    both spouses can give away 3k per year, every year, with no possible IHT claw-back. And this exempt amount can be retroactively claimed one year in arrears I think (needs checking!) so they can give 12k right now no worries. They can also give special extra amounts for weddings (5k?) and 250 quid per birthday which is additional.

    revs1972
    Free Member

    Dad withdraws £10k from his bank (or just withdraws it over a period from ATM’s) and gives it to child, who buys a car.

    End of story.

    Totally agree with you but as a quicker way….

    what if they had a wager / game of poker etc and the child won £10k from the parent ?

    poolman
    Free Member

    Yes the 3k gift can be claimed retrospectively, or backdated if not used the year before.

    For those saying just pay cash, if there’s an iht liability HMRC will look at the numbers.  You can also gift regular amounts out of spare income, say a pension for a grandson.

    FunkyDunc
    Free Member

    As above I thought it was a £3k gift per year limit

    If the estate is big enough to have inheritance tax they will go through previous 7 yr accounts

    MoreCashThanDash
    Full Member

    Dad withdraws £10k from his bank (or just withdraws it over a period from ATM’s) and gives it to child, who buys a car.

    Dad dies next day. HMRC use their investigative powers to ask where all the cash withdrawals have gone, or check the children’s accounts to see if it was deposited there. Or ask to see the bank/card transactions to show the origins of the payment for the shiny new car/kitchen/trip to Vegas..

    FuzzyWuzzy
    Full Member

    What my dad does is write a letter stating that the money is a genuine gift. Apparently if the car is a genuine gift then the tax doesn’t apply

    This isn’t correct

    weeksy
    Full Member

    Dad dies next day. HMRC use their investigative powers to ask where all the cash withdrawals have gone, or check the children’s accounts to see if it was deposited there. Or ask to see the bank/card transactions to show the origins of the payment for the shiny new car/kitchen/trip to Vegas..

    Is that honestly likely though…. HMRC can’t check every death, every transaction.. surely.

    theotherjonv
    Full Member

    No but they would be way more likely to for iht cases, which iirc is about 4% of them (hence why Rishi’s plan to scrap iht is only for the already pretty rich)

    intheborders
    Free Member

    Is that honestly likely though…. HMRC can’t check every death, every transaction.. surely.”

    And don’t.

    I’ve kids and Grandkids and can directly pay their nursery fees and/or school fees for example, my choice (and thus ensuring my sons have more money to buy a car for example).

    Years ago I was chatting to our sons’ headmaster (small private school) and asked him what percentage of parents paid vs grandparents (and other relatives) – about 50/50 was his estimation.

    Or buy 2 eBikes 🙂

    bentandbroken
    Full Member

    I have just been through this. A relative gave my son their car when they had their license taken away. They died less than a year later. The value for the estate was £4,200.00. The Solicitors looked at his age (17) and realised it was a genuine gift for someone who had just passed their test and ruled it as such taking the value out of the estate calculations. The only difference is that the estate was no where near the IHT threshold, but they were adamant that the £3,000 element did not matter (they also said that if it did they would just factor it as £3,000 one year and £1,200 the following year).

    As to the comment about HMRC checking, no they do not check every estate to that level, but the executor has a legal obligation and the fines etc are serious. They are also on a drive to check more estates that fall under the IHT threshold at the moment.

    whatyadoinsucka
    Free Member

    the £325k is per person, hence if your spouse died you would then have double allowance £650k, assuming you’d received all monies. more complicated if inheritence is passed down at that point..

    What’s The Inheritance Tax Threshold For Married Couples?

    footflaps
    Full Member

    As above I thought it was a £3k gift per year limit

    Yep, my parents give myself and my brothers a £3k every year (final salary pensions and have more money than they know what to do with).

    They also gifted us a cottage in the Yorkshire Dales a few years ago. They had to pay tax on the increase in value as from a tax point of view they were disposing of an asset that had accrued in value. We won’t have to pay any tax as long as they live 7 years past the date of the gift.

    IHN
    Full Member

    Dude, really, get a grip. Is a million pounds inheritance tax free allowance not anough?

    Dude, really, read the post properly before being a smartarse.

    johnx2
    Free Member

    the £325k is per person, hence if your spouse died you would then have double allowance £650k, assuming you’d received all monies. more complicated if inheritence is passed down at that point..

    ^^^

    Exactly, plus the other bits that push it higher to around £1m. Most people who worry about this really have no need.

    Including me. Obviously I think inheritance is the very fairest thing to tax. But when my dad wanted to give us his offspring money under the seven year regs, we did a bunch of this fiddly stuff that was actually completely unnecessary as his estate ended up under a million.

    He didn’t make many of the seven years and after he died (our mother having died a good few years earlier in her 60s, gulp) I remember my brother in law trying to describe to our solicitor what we’d done. Including something about how this wasn’t really a gift, and look here’s a letter confirming, but… I forget. Highly undignified either way and the solicitor had zero interest as the estate was under a million.

    iainc
    Full Member

    so if the gifts, whether cash, or car etc, are over the 3k annual ceiling, and the ‘giver’ dies within the 7 year period, does the tax, if requested by executor, come from the estate, or from the recipients of the gifts ?  Assuming estate under the £1M figure mentioned above.

    stealthcat
    Full Member

    I’ve kids and Grandkids and can directly pay their nursery fees and/or school fees for example, my choice (and thus ensuring my sons have more money to buy a car for example).

    Years ago I was chatting to our sons’ headmaster (small private school) and asked him what percentage of parents paid vs grandparents (and other relatives) – about 50/50 was his estimation.

    If it’s a regular payment out of income, the rules are different.

    The .gov.uk link above covers both these scenarios.

    One way to do it would be for each parent to gift £5,000, assuming they didn’t use the £3k gift allowance last year. Then both gifts would be covered and exempt.

    johnx2
    Free Member

    so if the gifts, whether cash, or car etc, are over the 3k annual ceiling, and the ‘giver’ dies within the 7 year period, does the tax, if requested by executor, come from the estate, or from the recipients of the gifts ?  Assuming estate under the £1M figure mentioned above.

    What tax? There isn’t any.

    fossy
    Full Member

    HMRC aren’t stupid so bear this in mind.

    fossy
    Full Member

    Unless a parent dies suddenly, don’t worry about inheritance tax as most of the estate value will vanish in care fees (as it did with MIL) very quickly.  A couple of years at £75k a year soon eats into any estate.

    Best off spluging on coke and hookers and living in a council house, and you’ll have old age paid for by the state.

    MoreCashThanDash
    Full Member

    Is that honestly likely though…. HMRC can’t check every death, every transaction.. surely.

    I don’t know how the IHT teams work, presumably a link from probate?, but we have the powers, if not the resource. Obviously if the estate is way below the threshold it doesn’t matter.

    Certainly care fees will chew through potential estates at a terrifying rate.

    HMRC aren’t stupid so bear this in mind

    Looks around the office…. 🤔

    Dickyboy
    Full Member

    What tax? There isn’t any.

    Surely the £1m figure relates to family home being passed to direct descendant(s) if it’s all in the bank £325k is still applicable. No idea if estate or beneficiaries would pay tax on any gifts, guess it depends.

    intheborders
    Free Member

    If it’s a regular payment out of income, the rules are different.”

    Dad pays for car via a bank loan that has death insurance cover on it.

    Onzadog
    Free Member

    Is there an option for the parents to buy the car and let you use it? Then when they finally pass, the value of the asset would be significantly less than £10k?

    johnx2
    Free Member

    Surely the £1m figure relates to family home being passed to direct descendant(s) if it’s all in the bank £325k is still applicable. No idea if estate or beneficiaries would pay tax on any gifts, guess it depends.

    Firstly, don’t call me Shirley.

    Secondly, there’s clearly others who know vastly more about this than I do, my mind slides off it frankly, but the £325k each per half of a couple relates to money in the bank/shares, whatever, with an additional £175k each for their home, all adding up to their estate.

    Someone other than me may be able to say what if anything the recipient of a big cash gift which isn’t part of an inheritance needs to declare in their annual tax return. I feel I should check that we do all know that this is how inequality and unfairness is ingrained right?

    poolman
    Free Member

    For a failed gift, ie, donor dies within 7 years, the recipient of the gift has the tax liability.  You can word your will to say any tax liability from failed gifts comes out of deceased estate.

    HMRC have power to look into anything, with no iht liability it’s not worth their while, unless estate is just on the limit.

    It’s a bit like self assessment, once HMRC start looking at your accounts it’s pretty obvious they suspect something.  I know honest people who have had potential enquiry letters, done nothing wrong, but recipient has to provide bank statements going back ages proving innocence.

    dantsw13
    Full Member

    Are pension pots liable for IHT?

    5lab
    Full Member

    Are pension pots liable for IHT?

    no, and if you die before 75 the inheritor can pull the cash without any tax too afaik

    mattyfez
    Full Member

    I thought pensions cease to exist on death? unless your are spouce and beneficiary of the deceased… maybe it depends on the type of pension.

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