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goldaccounting said:
“
Hallo
I have a client who has gifted £12,000 to her son-in-law to help him purchase a property as he is divorcing her daughter.
The Cash changed hands BEFORE the divorce was signed.
Both of them are my clients.
I believe the annual allowance is £3000 per annum.
What are the implications for both of their tax returns?
She is retired and her income is mostly Pension, but she has a varying amount of Royalty Income that we have to declare, hence her need for a Tax Return.
He is both Employed and Self-Employed, and has also received 43K from the X-wife as a Divorice Settlement (which i understand is tax fee).
This is going to put his total income into the higher tax bracket.
Is it as simple as I think to work out?
Any advice would be appreciated.
”
This should help:
Children won’t have to pay any immediate tax on money gifted to them from the Bank of Mum and Dad. And parents won’t pay any tax on the gift either.
However, down the road an inheritance tax bill could be due. Everyone is allowed to give up to £3,000 a year away, and it is immediately exempt from inheritance tax. You can also carry over any unused allowance from the previous year. This means two parents could gift their child £12,000 without inheritance tax being a problem if they hadn’t gifted any other money to anyone in the previous two years.
If you want to give more than that – or for some other reason don’t have your full annual inheritance tax allowance to play with – then the money could be liable for inheritance tax.
If the person gifting the money was to die within seven years it would still be classed as part of their estate for inheritance tax purposes. This means if their total estate, including the gift, is worth more than £325,000 then up to 40% tax would be due on the excess.
The amount of tax due on the gift decreases as the seven years elapse.
| Years between gift and death |
IHT Tax rate |
| Less than three |
40% |
| Three |
32% |
| Four |
24% |
| Five |
16% |
| Six |
8% |
| Seven or more |
0% |
How much tax is due on the gift will depend on how many years have passed since it was handed over.
So as long as both parents survive 7 years from date of gift - not tax to pay for any party.
Hope this helps.
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