Tax implications of cash gift from parent to child...
Tax implications of cash gift from parent to child...
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the_lone_wolf

Original Poster:

2,622 posts

216 months

Wednesday 20th February 2013
quotequote all
Hi all

Quick question, I think I have a handle on it but wanted to check as tax is quite a tricky subject to get through.

Can someone give me an indicator of the tax implications of a parent gifting a substantial amount of money, around £65,000, to one of their children. It's a simple cash gift, transferred from one bank account to another.

My understanding from reading the HMRC website and searching online is that the gift is not considered to be "earnings" and doesn't need to be declared as such, but should be declared on the appropriate tax return as a gift.

Also, inheritance tax would not apply if the gift were given before the date seven years preceding the future date of death of the parent.

From what I can see that's the extent of the tax implications, is there anything else I should know or haven't found?

Thanks for any help in advance...

Newc

2,195 posts

212 months

Wednesday 20th February 2013
quotequote all
If the child is over 18 you have it right, just the 7 year rule for IHT to consider.

If under 18 additional rules apply.

the_lone_wolf

Original Poster:

2,622 posts

216 months

Wednesday 20th February 2013
quotequote all
Newc said:
If the child is over 18 you have it right, just the 7 year rule for IHT to consider.

If under 18 additional rules apply.
Thanks - Forgot to mention the child is over 18...

ellroy

7,846 posts

255 months

Wednesday 20th February 2013
quotequote all
It's as simple as a potentially exempt transfer for IHT then.

If you've not used this years, and lasts, £3000 exemption, then £6,000 can be knocked off the PET.

If it came from a joint account with spouse you can double that.

So it could be as little as £53,000 PET in total, falling on both individuals half each. Both survive 7 year all exempt.

No income tax issues, which would apply if child under 18, when any interest in excess of £100 would be treated as yours.

sumo69

2,164 posts

250 months

Wednesday 20th February 2013
quotequote all
The gift is not declared on any tax return at this time - it is a Potentially Exempt Transfer (PET) which means that it may be liable to Inheritance Tax if the donor fails to survive for 7 years from the date of gift.

Should this be the case, it will need to be entered on the IHT400 forms that are completed to calculate any IHT on your death.

David

sumo69

2,164 posts

250 months

Wednesday 20th February 2013
quotequote all
ellroy said:
It's as simple as a potentially exempt transfer for IHT then.

If you've not used this years, and lasts, £3000 exemption, then £6,000 can be knocked off the PET.

If it came from a joint account with spouse you can double that.

So it could be as little as £53,000 PET in total, falling on both individuals half each. Both survive 7 year all exempt.

No income tax issues, which would apply if child under 18, when any interest in excess of £100 would be treated as yours.
I believe that the annual exemptions are only deducted from the value if the transfer becomes chargeable, not at this time when it's a PET.

In any case, no tax payable by anyone now.

David

the_lone_wolf

Original Poster:

2,622 posts

216 months

Wednesday 20th February 2013
quotequote all
Thanks all for the very informative replies...

Divorced parent so only one annual exemption to account for, but hopefully shouldn't apply, certainly the intention is to stay alive for a good while yet!!

So no need to declare anything now, only if the parent should pass away within seven years? Is there any way of making an official note of the gift with HMRC so as to avoid future confusion?

Is the annual interest earned (roughly £1500) likely to raise any flags on tax returns in the next few years if it isn't mentioned?

QBee

22,511 posts

174 months

Wednesday 20th February 2013
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The interest earned is subject to basic rate tax deducted at source by te paying bank. If your total income including the interest is over £42000 a year then you will need to complete a tax return, declare the interest, and pay the higher rate tax on it. Any amount invested in an ISA or other income tax exempt investment will not be subject to this rule

sumo69

2,164 posts

250 months

Wednesday 20th February 2013
quotequote all
It's normal practice to get a signed receipt and keep this with your will (you do have one?)

David

the_lone_wolf

Original Poster:

2,622 posts

216 months

Wednesday 20th February 2013
quotequote all
sumo69 said:
It's normal practice to get a signed receipt and keep this with your will (you do have one?)

David
Hi David

Should point out I'm not the parent involved here - although I know that a will is in place. An idea then, to get some kind of paperwork drawn up and have both parties sign to acknowledge the transfer?

Thanks for the info QBee - basically just treat it as any other income from savings then?

sumo69

2,164 posts

250 months

Wednesday 20th February 2013
quotequote all
Yes - formal paperwork recording the gift us a good idea.

Further, if it won't cause issues, the executors should have sight if this as well.

David

the_lone_wolf

Original Poster:

2,622 posts

216 months

Wednesday 20th February 2013
quotequote all
sumo69 said:
Yes - formal paperwork recording the gift us a good idea.

Further, if it won't cause issues, the executors should have sight if this as well.
Three executors, one is the recipient, the other is a sibling, other a close family friend and accountant - all aware of the gift.

Paperwork regarding the source is required for the purpose of the gift so no problem there, that's all covered.

Thanks again for all the info from all the replies. Very much appreciated smile

LeoSayer

7,838 posts

274 months

Thursday 21st February 2013
quotequote all
Is the gift truly a gift or is it being used to spirit money away from an ex-spouse, taxman, debt collector etc?

I don't know if it makes a difference, just interested.

the_lone_wolf

Original Poster:

2,622 posts

216 months

Thursday 21st February 2013
quotequote all
LeoSayer said:
Is the gift truly a gift or is it being used to spirit money away from an ex-spouse, taxman, debt collector etc?

I don't know if it makes a difference, just interested.
Haha, no nothing so untoward...biggrin It's all above board, morally and legally...smile