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How does it work?
My parents may be in a position to give us a few thousand (15k ish) after the sale of their house (downsizing). But how does this work tax-wise?
Their total estate even with their new house would be around 200k so well under inheritance tax thresholds. So could they give us as much as they like, or is there still a limit per year?
I know this is quite complex so links to any clear and concise websites would be appreciated!
Ta!
They can gift you as much as they like, but if they die within 7 years of gifting it to you that gift will be subject to inheritance tax on their whole estate.
15k eh? waheyyy new bike time then.
15k eh? waheyyy new bike time then.
...probably something even more exciting! Like a new roof!
😆
From what you say they can give as much as they like without either you or them having a tax issue because they are under the threshold now. But if they manage to a) become a lot richer and b)die within the next seven years you may have to pay some tax as inheritance tax bites as of the date of death and gifts in the last 7 years are counted into the estate .
I failed this part of the relevant exam 25 years ago which is when I last thought about these issues.
I refused to give advise to my parents about this area of law as a result of which my dad did nothing which may or may not have effected my inheritance. I ended up with two suits a penknife a sledge hammer and a pickaxe.
The tax owed tapers though, so less is owed 6 years after the gift than 1 year after.
And as said, it's not relevant if whole estate is under threshold.
What a horrible tax it is, not that I'll be getting owt from my parents- more like I'll be chased for the ****er's debts!
Cheers,
Jamie
Because the Total Estate before the gift is less than the Inheritance Tax threshold (which is currently £325,000 for an individual, but may be transferable between a married couple giving an effective £650,000 on the second death) there will be no Inheritance Tax Issues in this case, unless they win the Lotto, Inherit or find some other way of accumulating assets over the threshold.
Even if they do then they still have an annual gifting allowance of £3,000 each (rolled up to £6000 in the first year of gifting) so assuming a gift of £15k to an individual it could be structured like this - £6k from mum, £6k from dad, wait until 6th April 2014 £3k from either mum or dad, all using annual exemptions so no IHT problems ever.
Family wealth planning in action right there.
And get the gift/s as per the £3k allowances (including the retrospective gift) documented and signed just in case. Copy for you, master in their legal / will documents.
Of course, if they were to pay for said new roof directly, it's unlikely that would be picked up...
What a horrible tax it is
Why? They don't need the money when they are dead.
Much better for them to spend the money while they are alive (returning it to the economy), or give it to someone younger so they can spend it, than hoard it until they are dead and then pass it on to someone else who will also hoard it until they die.