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Getting money from the bank of mum and dad

VXB

Active Member
Morning all.

A mate of mine at work is likely to get hold of some money equating to several tens of thousands of pounds from his dad - so that my mate can use it towards a deposit on a new home....

He's asked me if he is liable to tax or if there is anyway that this "transfer" can be made withour raising eyebrows that would lead to having to pay tax on it...

if we notionally said that the amount is £50k, whats the best "tax free" way to get a hold of this money....
 

kav

Distinguished Member
Could his dad not just write him a bank draft/cheque? If you're worried about inheritance tax, I don't think that applies in this case, but I'm sure the knowledgeable legal guys here will have the info you need.
 

Jenn

Distinguished Member
Gifts that are exempt from Inheritance Tax : Directgov - Money, tax and benefits

The seven-year rule - 'potentially exempt transfers'
Any gifts you make to individuals will be exempt from Inheritance Tax as long as you live for seven years after making the gift. These sorts of gifts are known as 'potentially exempt transfers'.

However if you give an asset away at any time, but keep an interest in it - for example you give your house away but continue to live in it rent-free - this gift will not be a potentially exempt transfer. Follow the link below to find out more.

If you die within seven years and the total value of gifts you made is less than the Inheritance Tax threshold, then the value of the gifts is added to your estate and any tax due is paid out of the estate.

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 person receiving the gift or by the representatives of the estate.

If you die between three and seven years after making a gift, and the total value of gifts that you made is over the threshold, any Inheritance Tax due on the gift is reduced on a sliding scale. This is known as 'Taper Relief'.

I don't think any other tax would apply?
 
Thats correct, the seven year rule will apply here.

After seven years (if your parents are still alive) you will be exempt from inheritance tax.

In the unlikely (god forbid) event that your parents die then you might be liable for some tax payment.

Just ensure you keep a record of all transactions, bank statements etc with your property documents.

Sid
 

Iccz

Distinguished Member
Tell them to buy a place in Gibraltar, apply for citizenship then enjoy the benefits of 0% inheritance and corporate gains tax :D
 

Desmo

Distinguished Member
Yep, no tax to be paid as long as his parents last another 7 years :)
 

imightbewrong

Distinguished Member
Though all the above is correct IMO, you should personally verify this for yourself, by at least checking HMRC via the link provided.

If any of it is wrong, and you are hit with a fine/extra tax, then 'but a penguin and a set of dice on a hi-fi forum said it was okay' won't cut much mustard with the tax man ;)

(replace 'you' with 'your mate' as appropriate)
 

Desmo

Distinguished Member
'but a penguin and a set of dice on a hi-fi forum said it was okay' won't cut much mustard with the tax man ;)
How do you know my penguin doesn't work for HMRC? :D
 

wack

Well-known Member
so say the parent gives the son 50k then dies 3 years later but the parents whole estate is under the inheritance tax limit including the 50k (ie house and savings 200k + 50k given to the son) current limit 300k IIRC

is there still any tax to pay, does the son have to declare the 50k as unearned income or is it tax free as the parent has paid tax on the money when it was earned + tax on any interest.

Just wondering in case I have any rich relatives I didn't know about :D
 

nheather

Distinguished Member
I would imagine that if the total is under the limit then there wouldn't be tax to pay.

I believe the limit is £350K and both your mum and dad get a limit - so £700K. When one parent dies, the surviving parent 'inherits' the limit maintaining it at £700K.

Pretty sure of the above but not 100% so happy to stand corrected.

Cheers,

Nigel
 

DPinBucks

Distinguished Member
so say the parent gives the son 50k then dies 3 years later but the parents whole estate is under the inheritance tax limit including the 50k (ie house and savings 200k + 50k given to the son) current limit 300k IIRC

is there still any tax to pay, does the son have to declare the 50k as unearned income or is it tax free as the parent has paid tax on the money when it was earned + tax on any interest.

Just wondering in case I have any rich relatives I didn't know about :D
For a gift of this kind, the recipient never has to pay any tax. The only tax is inheritance tax, which is payable by the estate of the deceased. Under current rules, tax at 40% is payable by the estate on any amount over £300,000, and that includes any gifts of over £3,000 in any one year made up to 7 years earlier (proportional to the number of years, so if was given 6 years ago it's only assessed at 1/7th of the amount). It's complicated a bit by the fact that money left between spouses is not assessed, and a spouse can take on the £300k of the deceased partner, making up to £600k allowance in all. But let's not go too deeply into that, partly because I don't know the details, and partly because anyone in that position is well advised to seek professional advice.

=== EDIT ===
nHeather may well be right at £350k.
 
The current threshold is £325k each.

I don't think its quite as simple as the whole allowance is inherited by the surviving partner, i think there are a number of variables involved. I'm certainly in no position to advise, would recommend as suggested you seek a professional.

I know a couple of families who have made very expensive "administration" errors by simply not seeking professional advice.

Anyone can be hit with this at any time, so its worth looking into to minimise your exposure.

Sid
 

imightbewrong

Distinguished Member
I don't think its quite as simple as the whole allowance is inherited by the surviving partner
Sid

I think it is actually - it was not the case until a few years ago when legislation was brought in to make this law. So if a spouce dies, all their estate can go to the partner, and then when they die, the whole estate has a 650K allowance.

The change was made retro-actively, so as long as one spouce survived until after the legislation was changed (2005/6?) then it applies.

When talking about £100Ks though you should get professional advice - even if your forum-penguin does claim to work for [-]Satan[/-] HMRC :D
 

Phil57

Well-known Member
Does the 'Bank of Mum & Dad' have a branch in the West Midlands?;)
 

Rasczak

Distinguished Member
I don't think any other tax would apply?
Does Capital Gains apply? I made a few transactions a couple of years back that involved purchase of a property for my son's University home - the whole transaction was complicated by numerous factors which are unlikely to be applicable here - but I do remember getting a long (and very dull) brief from the solictitor re the tax plan.
 

imightbewrong

Distinguished Member
well I didn't do too well on the FRS thread, but anyway: I'm pretty sure that gifts are very simple - you gift someone some money, that is that - no tax to pay. If the benefactor then goes and dies, IHT will be payable on that amount, which tapers down to zero over seven years. There are various allowances, like you can gift someone an amount (350 quid? something like that) per year and that is exempt from IHT.
 
Last edited:

wack

Well-known Member
if the whole estate (including any gifts handed out in the preceding 7 years) is under 325k does IHT still apply if the parent dies within 7 years.

The way you've written it suggests yes but post 3 suggests different
 

imightbewrong

Distinguished Member
The allowance always applies, but the rate paid tapers over the 7 years.

So if a person dies, then when they are calculating the value of their estate, any gifts within the last seven years will go towards the total, then the allowance will be taken off that, then tax due on the rest. I don't know exactly how the past gifts fit into that - it would be beneficial if they went into the part over the allowance, as less tax is due on them. Really couldn't comment on that though.
 

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