£50,000 Cash Gift - What advice can you give ???


Postby DartmoorDave on Thu Jun 26, 2008 12:25 pm

Hello,

My mother-in-law is about to loose her house in a nasty divorce settlement. A friendly neighbour has offered us £50,000 to: a) Pay of the outstanding mortgage £14K, b) Make a cash settlement to the ex-husband £34K, c) Pay the legal costs involved £2K.

Unfortunately the neighbour is elderly, appox 80 yrs old, therefore there is a chance she may pass away sometime within the next 7 yrs.

What are the pit falls, can anyone give me some advise on how to get around this problem?

Many thanks...
DartmoorDave
 
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Postby pawncob on Thu Jun 26, 2008 2:33 pm

If she dies within three years, the whole of the gift forms part of her estate (and assuming her total estate is over £312000)tax may be payable.
After that it reduces to zero over 5 years in 20% increments.
Your MIL would be liable for any tax arising, at 40%.
How does the gift help your MIL in her divorce? Reducing the mortgage just benefits her husband, unless the £14k is an agreed settlement.
With a pinch of salt take what I say, but don't exceed your RDA
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Postby Lee Young on Fri Jun 27, 2008 6:13 am

Pawncob's comments are not entirely accurate.

If the neighbour dies within 7 years then the value of the gift he makes, less any available annual exemptions, will be added to his death estate. Unless he has already made chargeable transfers caught at that point that equal or exceed the nil rate band applicable then there will be no tax payable on the gift by you or the estate.

If he has made chargeable transfers that equal or exceed the nil rate band applicable then your mother in law could suffer up to 40% tax on the gift, is maximum £20,000. The estate would also have extra tax to pay on the gift itself, though it would benefit from Taper Relief on the tax on the gift (not a tapering of the gift itself) if he survives 3 years from the gift.

I think your mother in law would want the divorce settlement agreed before receiving the £50,000 or otherwise this would be up for grabs also!
Lee Young
Solicitor, Chartered Tax Adviser and Trust and Estate Practitioner


Partner, Frettens LLP
leeyoung@frettens.co.uk
01202 491701
Lee Young
 
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Postby DartmoorDave on Fri Jun 27, 2008 10:32 am

Thank you for both your comments, to expant a little further. When the divorce was granted a few months ago a court order was put in place to settle the financial affairs. Basically the ex-husband gets to keep his pension, savings and get 23% of the profit from the sale of the house.

Therefore, in order to have the house remain in the sould name of the MIL, we shall have to pay off the remaining mortgage (£14K), then taking into account costs, pay the ex-hubby the £34K he want to walk away without having to sell the house.

We have a legal agmt now drawn up as a deed that he shall not contest the court order and that that has now been set aside.

Ref the cash gift, without the wealthy friend, we could not afford to do this, but are aware of the £3K limit on gifts... or we have to declare it to the IR, how can we get around this.

To us a non-wealthy people it seems unfair that if you have earned money, paid tax on it, that you cannot just give it away. One idea that has been proposed is to have a loan / mortgage style agmt drawn up so that the IR can see a return on the gift, then when wealthy friend passes away to have the amount bequeathed to MIL - what do you think???
DartmoorDave
 
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Postby Lee Young on Mon Jun 30, 2008 4:42 am

There is no requirement for you to declare the gift anywhere. It would be the repsonsibility of the neighbour's executors if he died within the 7 years.
Lee Young
Solicitor, Chartered Tax Adviser and Trust and Estate Practitioner


Partner, Frettens LLP
leeyoung@frettens.co.uk
01202 491701
Lee Young
 
Posts: 2919
Joined: Wed Aug 06, 2008 3:26 pm


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