Money to the Masses Fixing your finances, solving your problems
Reader Question:
Can I give cash to my family before I die without any comeback to my family? We have approx £80- 90K
My response:
When you say any comeback, from whom do you actually mean? I’m guessing what you really mean is that if you give money to your children will the tax man come after them for Inheritance Tax (IHT) if you were to die?
Any gifts you make to individuals will be exempt from IHT as long as you live for seven years after making the gift. These sorts of gifts are known as ‘Potentially Exempt Transfers’ (PETs).
But should you die within seven years and the total value of the gifts you made be less than the Inheritance Tax threshold (currently £325,000), then the value of the gifts is added to your estate and any tax due is paid out of the estate if the total value of gifts and your estate exceeds the IHT threshold. Any tax due is paid by your estate and not the recipients of any gifts.
However, if you die within seven years of making a gift and the gift is valued at more than the Inheritance Tax threshold, Inheritance Tax will need to be paid on its value, either by the persons receiving the gift or by the representatives of the estate. Assuming that you only make gifts totaling £90,000 this will not apply to you.
You may have heard about something called ‘taper relief’ which reduces any IHT liability if you make a PET and you die. However this only applies if you die between 3 and 7 years of making the gift, and the total value of was over the IHT nil rate band threshold. A fuller explanation can be found here – IHT taper relief explained.
Also you must make sure that your £90k gift is a true gift and that you do not benefit from it in any way otherwise it may fall foul of HMRC’s gift with reservation rules and still form part of your estate for tax purposes.
Exempt gifts
But people looking to gift away money should remember that if their estate is worth more than the Inheritance Tax threshold there are some IHT exemptions that allow you to make gifts to others and not have to pay worry about IHT consequences when you die.
For example, you can give away gifts worth up to £3,000 in each tax year and these gifts will be exempt from IHT when you die. This annual exemption is in addition to the other gift exemptions. Here is a link to details of all the gifts that are IHT exempt.
15 ways to cut your IHT bill
Given that you are worried about IHT and you don’t state how large your estate is then have a read of my guide 15 ways to cut your IHT bill.
I hope that helps
Best Wishes
Damien
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