Discussion
Hi... looking for some advice - which may well be go and get some proper advice, but here goes anyway!!
Father on verge of selling his house and moving in with partner.
Once sold his intention is to give me and my wife around 100,00 GBP to clear our mortgage.
I think i understand the inheritance tax issues - in that he needs to survive a minimum of 7 years to fully resolve that part ( although not sure what happens if the worse happens in the next 3-4-5 years ).
The bigger question is what tax implications are there - if any - of him doing this for my tax year?
or, is there anything I should do to inform the tax man of this 'gift'?
Father on verge of selling his house and moving in with partner.
Once sold his intention is to give me and my wife around 100,00 GBP to clear our mortgage.
I think i understand the inheritance tax issues - in that he needs to survive a minimum of 7 years to fully resolve that part ( although not sure what happens if the worse happens in the next 3-4-5 years ).
The bigger question is what tax implications are there - if any - of him doing this for my tax year?
or, is there anything I should do to inform the tax man of this 'gift'?
It is an Inheritance Tax/Gift Tax issue for him rather than you. And, as you say, if he survives for more than 7 years, then the £100,000 is no longer part of his estate on death and will not form part of the estate for Inheritance Tax purposes.
You are not personally liable to any income tax on the receipt of the £100,000 gift.
More concerning will be his involvement with his partner.
They obviously aren't married and possibly don't intend to get married.
What will be the arrangement with his partner regarding any future properties or investments/savings they may own jointly or separately?
As far as the law is concerned, people who live in a "partnership" ( NOT civil partnership) relationship have no legal connection whatsoever so receive none of the Inheritance Tax breaks open to married couples or those in civil partnerships.
You are not personally liable to any income tax on the receipt of the £100,000 gift.
More concerning will be his involvement with his partner.
They obviously aren't married and possibly don't intend to get married.
What will be the arrangement with his partner regarding any future properties or investments/savings they may own jointly or separately?
As far as the law is concerned, people who live in a "partnership" ( NOT civil partnership) relationship have no legal connection whatsoever so receive none of the Inheritance Tax breaks open to married couples or those in civil partnerships.
Eric Mc said:
It is an Inheritance Tax/Gift Tax issue for him rather than you. And, as you say, if he survives for more than 7 years, then the £100,000 is no longer part of his estate on death and will not form part of the estate for Inheritance Tax purposes.
You are not personally liable to any income tax on the receipt of the £100,000 gift.
More concerning will be his involvement with his partner.
They obviously aren't married and possibly don't intend to get married.
What will be the arrangement with his partner regarding any future properties or investments/savings they may own jointly or separately?
As far as the law is concerned, people who live in a "partnership" ( NOT civil partnership) relationship have no legal connection whatsoever so receive none of the Inheritance Tax breaks open to married couples or those in civil partnerships.
Hi Eric, as ever many thanks..You are not personally liable to any income tax on the receipt of the £100,000 gift.
More concerning will be his involvement with his partner.
They obviously aren't married and possibly don't intend to get married.
What will be the arrangement with his partner regarding any future properties or investments/savings they may own jointly or separately?
As far as the law is concerned, people who live in a "partnership" ( NOT civil partnership) relationship have no legal connection whatsoever so receive none of the Inheritance Tax breaks open to married couples or those in civil partnerships.
i believe that they will live in 'her' house and it will remain wholly owned by her, but there will be an agreement in place possibly via wills i'm not too sure as i dont dig too much into his personal affairs, that if he passes first then the remainder of his estate passes to myself.
if she passes first then he is allowed to stay in the house until his passing whereby the house is sold and proceeds divided as per her wishes.
day to day they keep their finances very seperate i believe.
Hi both, thankyou very much for taking the time to answer...
i know they both have wills, and have briefly read through my fathers, not hers as i am not a benficiary in any way of hers.
So, hopefully they are covered but will try to make sure they are both covered for the worst case scenarios..
thnaks again..
i know they both have wills, and have briefly read through my fathers, not hers as i am not a benficiary in any way of hers.
So, hopefully they are covered but will try to make sure they are both covered for the worst case scenarios..
thnaks again..
Well done to all for some very straightforward advice.
Even so, it's worth stressing, again and again, that the myth of a 'common law wife', or 'common law husband' is just that - a myth. If a couple are just living together, no matter for how long, this has no standing, in law.
Neither has any right to gain tax breaks or whatever from the other's finances.
Just my 2p worth ....
Even so, it's worth stressing, again and again, that the myth of a 'common law wife', or 'common law husband' is just that - a myth. If a couple are just living together, no matter for how long, this has no standing, in law.
Neither has any right to gain tax breaks or whatever from the other's finances.
Just my 2p worth ....
You may wish to consider buying life assurance to cover the risk of donor's death within 7 years IF that would trigger a tax charge (see Jockman's comment about nil rate band above). I understand it can be bought on a basis which matches the declining tax charge as the 7 years tick away. Really depends how financially exposed you would be if you suddenly get a tax bill for £40k. [Obviously one potential "fix" would be to go out and re-mortgage the house to pay the tax bill.]
Ozzie Osmond said:
You may wish to consider buying life assurance to cover the risk of donor's death within 7 years IF that would trigger a tax charge (see Jockman's comment about nil rate band above). I understand it can be bought on a basis which matches the declining tax charge as the 7 years tick away. Really depends how financially exposed you would be if you suddenly get a tax bill for £40k. [Obviously one potential "fix" would be to go out and re-mortgage the house to pay the tax bill.]
hmmm, thats a bloody good ideA, as yes - i would not have the cash lying around...what is the rate of reduction per year for the liability over those 7 years?
but - all said and done a short term mortgage would be easy enough whilst sorting the remainder of his estate i guess... I'm a higher rate tax payer, under 50 and our house is worth maybe 400,00 today - so could re-mortgage for 5 years.... sort his estate and look to pay off sooner rather than later in a real pinch i guess...
might not be the prettiest way to sort, but would work..wouldnt it?
but i suspect his whole estate would fall under the limits mentioned by Jockman...
Eric Mc said:
It is an Inheritance Tax/Gift Tax issue for him rather than you.
Not necessarily true. Tax can be due on PETS, and the liability is the donees. It depends on the history and quantum of gifts. Broadly, the gift that tips the donor over their nil rate band, and subsequent gifts are at risk of a tax liability attaching to them. If gifts made in the prior 7 years to OP's gift, keep the donor below the nil rate band, no tax will be due on OPs gift no matter how long the donor survives.
teeceeee said:
what is the rate of reduction per year for the liability over those 7 years?
Tax reduced by 20% if your donor survives 3-4 years. 40% 4-5y, 50% 5-6y, 80% 6-7y. But your first task should be to add up all gifts made by the donor in 7 years prior to your gift. If those, plus yours is below the current nil rate band, there will be no tax liability for you, no matter how long the donor survives.
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