Gifts from parents to children

[AlanR]

Hello. My parents would like to give my partner and I 30,000 pounds. They are elderly and have recently bought a smaller apartment to live in, and have some cash left over. Does anyone have any suggestions as to how can they do this without incurring tax liability for them or us? Is there anything that the money could be spent on that could be transferred to us, for example? Thanks in advance for suggestions.

[Ian McTernan CTA]

The payment is treated as a PET for IHT purposes and is not immediately chargeable to tax. provided your parents survive for seven years, this payment will fall out of their estate for IHT purposes.

Ian McTernan CTA
McTernan Associates Ltd
Chartered Tax Advisers
ian@imcternan.com

[jbaileycta@btopenwor]

Even if your parents should fail to survive the required seven years, there is an annual exemption from Inheritance Tax (IHT) on gifts of £3,000 for each of them for each tax year. If they made no gifts in the previous tax year, this can be carried forward to the current tax year, thus allowing them each a maximum exemption of £6,000, so that could take care of up to £12,000 of the gift.

Are you and your partner thinking of getting married? If so, there is a further exemption for a parent making a gift on their child's marriage, of £5,000 for each parent. I hesitate to advise marriage as a tax planning ploy (my own wife was very cross because I mentioned certain tax advantages when proposing to her!), but if you were going to do it anyway, that could be a further £10,000 taken out of charge.

If you and/or your partner run a business, particularly a company, there is a way of keeping the whole gift free of IHT, even if the parents do not survive the seven years.

One last point - there is some disgraceful legislation in the current Finance Bill that could result in your parents suffering income tax if they were to "enjoy" this money in the future - for example, if you used it to buy a house and they then came to live in it with you. The exact way this will operate is as yet not clear, but it is just something to flag up as a warning.

Please let me know if you would like any further details about all this.

James Bailey - Chartered Tax Adviser
01822 810169
jbaileycta@btopenworld.com

[Arnold Aaro]

In addition to the annual exemption (which is not excatly generous!!) a Disocunted Gift Trust could be suitable.

Basically a Discounted Gift Trust allows your parents to rid themselves of some of the cash they have sitting in their estate, for IHT puposes.

Now, immediately on starting this Trust a good portion (i.e. 40% for 75 year olds) of the amount they put into the Trust is counted as outside of their estate for IHT purposes by the IR. After 7 years the whole amount is outside of their estate. But the cracker here is that your parents receive a TAX FREE income FOR LIFE from this Trust fund from day 1, which they can use as living expenses

Arnold Aaron
Investment and Inheritance Tax Planner
Zurich Advice Network
e mail: arnold.aaron@zurichadvice.co.uk
Tel: 0208 437 2500
[I advise extensively on Inheritance Tax Planning, particularly Discounted Gift Trusts and Investments in general]