Can parents gift me £50k

[DevonCream]

Hi,
I'm halfway through a divorce and selling the family home. We are then splitting the assets and will buy a house each with the equity and a small mortgage. My parents have kindly said they'll gift me £50k to go towards it so o can get something a bit bigger. They're both in their 80s and were left lots of money from my mum's sister last year which is why they can afford it. We are all a bit confused about whether they'd have to pay tax on the gift or if it's linked to inheritance tax. Can anyone help pls? Their home is worth around £800k if that's important when working out figs for IHT. Thank you.

IT will not be an issue if they live for more than 7 years. If they die before then, then IT will be due on a sliding scale depending how long they live.

The second part of this is wrong. The sliding scale only applies if you give more than £325k in the seven years before death.

OP, I'd be more worried about the £50k being up for grabs in the divorce negotiations than about inheritance tax.

So it sounds like it should be ok, then? Tax only due if they give me more than £325k and then die? Feels v harsh talking like this but just want to get it right.

Guide here: https://www.gov.uk/inheritance-tax/gifts

It will be worth it for you and them to pay for a solicitor's advice about a "Potentially Exempt Transfer" which is what you all want to do.

Thank you. I did read that but came away even more confused. I'm not good at this stuff!

Don't worry... got a consent order covering all that. Thanks though.

You need to fully divorce first!!

If your aunt died less than 2 years ago, it may be most efficient for them to vary her will (deed of variation possible within 2 years of death). Then you do t have to worry about 7 years because IHT will already have been paid in your aunt’s estate, and the variation just changes who the money goes to.

So half of the gift (assuming it comes from a joint account, so half from each parent) will be counted within the estate if a parent dies within 7 years. There is taper relief and an amount of 3k that can be passed on each year tax free, so not all of the 25k from that parent would be counted within their estate. Let’s assume the figure included in that parents estate is 15k.

Each parent get an IHT allowance of 325k (plus 175k if the main residence is being left to certain family members) but anything passing between spouses is exempt, so if everything else goes to the spouse, then the 15k is less than 325k and free of IHT on first death.

However, on the second parent dying, any left over allowance from first death can be added to second allowance.

If everything from first parent went to spouse, with no gifts, then this would be 325k, (plus 175k housing allowance), making 500k per parent, 1 million in total.

However in your case, 15k would have been used up on first death, so I think that would leave 310k + 175k from first death, plus 500k from second death, ie 985k in total.

You say that the house is worth 800k, how much money do they have on top of that? Are they likely to be near the 1 million joint allowance?

Bear in mind that one of them may go into a home, reducing the total amount left on second death considerably.

It is a minefield, and one reason we are passing money on to ours monthly via their ISAs whilst we in late 50s/early 60s. Yes one of us may die young, but less likely than when in our 80s.

The second part of this is wrong. The sliding scale only applies if you give more than £325k in the seven years before death.

Please can you link me to something that explains that? I thought anything above the annual allowance of £3k In total (more if given as a wedding present) would go back into the estate and be subject to IT if relevant. Not heard of the £325k gift allowance, relevant to us so link very much appreciated

As well as tax they need to consider deprivation of assets

@OMGitsnotgood

The text below is from HMRC site.

If tax is due on gifts

Inheritance Tax is only due if the person who died gave away more than £325,000 in gifts in the 7 years before they died. In this situation, the person who gets a gift in these last 7 years will have to pay the Tax.

Gifts use up the £325,000 tax free allowance first. Any unused threshold left after this can be used by the estate of the person who died.

As well as tax they need to consider deprivation of assets

I doubt this would be a consideration if they have a house worth 800k.

@OMGitsnotgood

In essence, anything above 3k reduces the IHT allowance, so it would depend how much more there is in the pot, and how much allowance there is, as to whether IHT is due.

what are their income levels? If you can show the gift came out of surplus income rather than capital (savings) then it is exempt from IHT anyway.

This

Thank you. That is very different to what our FA told us and what I understood. Will pass that on to him

Timing may depend if it is taken into account for the divorce settlement. Gifts for specific purposes like house deposits can attract higher exemption from IHT .

They can also gift from excess income under IHT 403.

If she still lives in the house she has a ‘benefit in kind’ and given that one parent has passed the property is not held as tenants in common which would mean a reduced IHT and possibly capital gains issue when your mum passes.
We had similar issues and there was a limited amount of both taxes.
My advice is get a good tax specialist accountant to review things. It will give you peace of mind. May cost you a bit - all toll we paid about 3k for a similar estate.