Parents want to give me money, how to reduce tax burden? UK edition.
January 20, 2015 1:47 PM   Subscribe

My parents are about to inherit a reasonable amount of money. They want to give my brother and I a lump sum of around £20000 each. If they just transfer the money to us what happens about tax? Is there a way to minimise the amount of tax to be paid? You are not my solicitor or financial advisor etc etc. I'll take advice but would like an understanding before I do. Thanks!
posted by chr to Work & Money (9 answers total) 1 user marked this as a favorite
 
As noted, not a financial advisor, not advice.

The current UK inheritance tax threshold is £325,000. If the inheritance your parents are receiving is above that, inheritance tax at 40% will be assessed on the portion of the money above that amount.

Your parents, in turn, would be liable for their own inheritance tax on money they give to you before death, over and above the £3,000 per year annual exemption for gifts. This is basically to stop people transferring large sums of money before death to avoid inheritance tax.

If gifts are made 7 years or more before the death of the person being assessed for inheritance tax and/or are under the annual exemption limit, and/or the total value of the estate is under the inheritance tax limit, you won't be liable for taxation.

If your parents are receiving a substantial inheritance, they really should have a financial adviser of some kind to keep them straight on this. Since they want to give the gift, determining the liabilities and legalities should really be on their shoulders.
posted by Happy Dave at 1:58 PM on January 20, 2015 [2 favorites]


I would speak to an accountant about this as well. HMRC has so many rules and ways around them that it is almost always worth speaking to a financial adviser.

One thing to consider is that the £3,000 limit is per person and in total, which means that they need to split that between you and your brother.

One thing to consider is if either of you are getting married or entering a civil partnership. Then the limit is £5,000.

Consider for you and your brother
- how important is it that you get the gift in cash?
- how long do you expect your parents to live?
- is it important that you get the gift, versus your children (if you have them)
- do your parents live in the UK or abroad? (different rules may apply)
posted by troytroy at 2:07 PM on January 20, 2015 [1 favorite]


One way to minimise tax in this situation is to have the (grand?) children directly inherit from the estate, but this requires advance planning in writing an appropriate will.
posted by Lanark at 3:00 PM on January 20, 2015


Ask the lawyer if there is a way that you can inherit directly from the estate. IANAL and I am an American, but we had a situation in our family where person A was due to inherit money. The will was written so that if A had died before the will was executed, then A's children, B and C would split A's share of the estate. In this case A was still alive but A was able to opt out of receiving part of his inheritance and so, following the rules of the will, that part was then split equally between B and C while the rest of A's share still went to A. So, assuming that there was a clause in the will that would have you and your brother inherit if your parents were no longer alive, your parent might ask the lawyer if it is possible for you two to inherit directly from the estate.
posted by metahawk at 3:35 PM on January 20, 2015


Not a resident of the UK and I've never looked into this sort of tax stuff for myself but I thought I'd mention special needs trusts which sound like they could serve a purpose like this if you or your brother had any disability that allowed you to fit into the category.
posted by XMLicious at 3:57 PM on January 20, 2015


What metahawk was talking about is a disclaimer, and the UK has it too. Parents' counsel or advisor should be able to see if it's feasible in this case.
posted by jpe at 5:42 PM on January 20, 2015


My dad got a solicitor to amend the terms of the will he was inheriting from so part of the bequest could go to my brother and I (around the same amount as you're looking at, in the UK). I didn't have to pay any tax.
posted by theseldomseenkid at 11:16 PM on January 20, 2015


Just searched through my old emails: the legal paperwork was called a Deed of Variation if that helps.
posted by theseldomseenkid at 11:19 PM on January 20, 2015


Response by poster: Thanks all - estate isn't going to be sorted for a while. Once things are moving again I'll consult an accountant.
posted by chr at 12:38 PM on February 20, 2015


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