iht on cash gift

by **frank1000** on Wed Jul 27, 2011 2:48 pm

My elderly father gives my sister £3000 at Christmas and smaller sums to other close relatives at Christmas as well as birthdays. If he could afford to give her £250 each month out of his pension income instead of the lump sum at Christmas, will there be less inheritance tax to pay on his estate?

by **maths** on Wed Jul 27, 2011 3:22 pm

In any 7 year period he can make gifts to other individuals up to £325,000 without any IHT charge arising.

Whether he gives her £3,000 lump sum or £250 per month makes no difference.

by **IanDarkwater** on Wed Jul 27, 2011 3:30 pm

Another short answer is no.

Dad can give up to £3,000/a to lucky sister & its immediately disregarded for IHT purposes.

He can also give any number of gifts up to £250 per person & its immediately disregarded.

He can also give any amount as sequence of gifts OUT OF HIS INCOME providing it doesn't reduce his standard of living & its immediately disregarded. What's a sequence of gifts? Who knows? Monthly sums certainly. Once every 10 years? - arguable!

by **frank1000** on Wed Jul 27, 2011 3:37 pm

Thanks maths. He is unlikely to live another 7 years and his estate will probably be over £650k. I thought I read somewhere that if a person made regular payments to another relative out of their income and could show that they were able to maintain their lifestyle, then these payments were exempt from IHT.

by **frank1000** on Wed Jul 27, 2011 3:41 pm

Thanks Ian. Are you sure your 3rd line is right? I thought gifts totalling £3k pa (plus the previous year's £3k if unused) were tax exempt.

by **maths** on Wed Jul 27, 2011 3:44 pm

That's correct.

It's the so-called normal expenditure out of income exemption (IHTA 1984 s 21).

Basically, as you indicate, regular payments may be made (to anyone, not just a relative) so long as this does not affect their standard of living; if the regular payments in a tax year do not exceed approx 30% of the individual's net (ie after tax) income normally no problem.

by **frank1000** on Wed Jul 27, 2011 4:10 pm

Thanks again maths. Still a bit confused. Are you implying that there will be less IHT on his estate in the future if he changes to monthly payments?

by **maths** on Wed Jul 27, 2011 4:19 pm

No.

The normal expenditure out of income exemption allows greater amounts to be gifted (eg £500 per month) in lifetime than the annual exemption which is restricted to £3,000 per tax year; whether £3,000 or £250 per month is given makes no difference to IHT on death.

by **frank1000** on Wed Jul 27, 2011 4:45 pm

Sorry to be a pain maths. In my first post I said he made cash gifts to other relatives as well, making a total well in excess of £3k pa. Are these regular christmas and birthday presents all IHT exempt. If they are not, and are added to the £3k lump sum (as opposed to £250 per month), wouldn't there be more tax to pay?

by **maths** on Wed Jul 27, 2011 5:07 pm

An individual may make exempt gifts up to £250 per donee per tax year; such gifts can be made to any number of donees eg £250 to each relative however many there may be.

In addition, an exempt amount of £3,000 per tax year could be made to the sister (for example); any unused element may be carried forward for one tax year only.