Cash gifts to family members

[grace123]

Hi

Two years ago I received a nice inheritance of £40k and I've now decided that I would like to share it with my brothers and parents. How much can I give to each of them as a one off payment without it having any tax implications to them or me? I had been thinking of £10k each to the brothers and £10k between the parents, thus giving out £30k in total - or would splitting it down further by giving £5k to each individual person including the sister in laws be a better approach? Grateful for any help as this is all a complete minefield to me!

[pawncob]

Gifts are limited to £3000 pa per individual, and you can use last year's as well, making £6k.
Anything over this is a PET, which means that if you give away £30k, and your estate, on death within seven years, exceeds £312k, the gifts will become taxable at 40%. The amount chargeable reduces at 20% per annum from years three to seven.
Larger gifts can be made on marriage.

[grace123]

Thanks for the reply but I'm a little confused so hoping for some more help. Are you saying that it automatically becomes a PET if I give a total of £30k away regardless of the fact that I'm intending to making £5k payments to 6 individuals or would it just become a PET if I gave £30k to one individual?

[georgan]

hi,
you are entitled to gift away, Inheritance Tax (IHT) free, max of £3,000 to a person, however many different persons you like, in anyone year. If to this same person you have not offered such gift the previous year, you can gift them £3,000, representing previous year's, and another £3,000, representing this year's maximum, i.e. total £6,000 in one go, which is IHT free. If you gift more than the yearly £3,000 maximum level then the automatic IHT free feature strips away off you gift and then you enter the PET zone. For PETs you can gift any amount greater than £3,000 to anyone person in anyone year BUT this will be considered IHT free only if you live more than 7 years from the day of the gift. If you dont, this gift is liable to IHT on a apportioned basis. That is, IHT is calculated on this gift as 100%, ie full IHT, if death occurs before 3yrs, 80% for 3-4 yrs, 60% for 4-5 yrs, 40% for 5-6 yrs or 20% for 6-7yrs. In case of a wedding gift you can gift up-to £5,000 per spouse IHT free. Also, you could make small gifts of £250 per anyone person in a year.

Remember all above are limits involving your gifts to ONE person. So if you want to divide an amount across multiple persons you should consider to slice this amount according to maximum limits above and pass these gifts to the appropriate persons.

Hope this is of some help.

Aris

[maths]

If you did not make any gifts in 2007/08 tax year then in 2008/09 you may make gifts of £6,000 in aggregate as exempt gifts (ie no IHT).

If you thus give aggregate £40,000 some £34,000 may be subject to IHT at 40% if you die within 7 years of the gifts.

However, if these are your only gifts to date in your lifetime then no IHT will arise even if you die within 7 years as the first £312,000 of gifts is taxed at 0%.

[Lee Young]

All the previous posters have assumned this (probably correctly but is it more than 2 years since the date of death of the person you inherited from? If not, then a deed of variation would mean you could avoid the PET issues referred to.

[grace123]

Yes - more than two years.

Thank you all for your help. Clear in my head now!