Cash gift from parents and tax

[Bogeyface]

My dad had a (genuine) PPI claim with his Lloyds credit card. They will be paying out a very large sum within the next couple of weeks. Dad almost got clobbered by one of the PPI claim companies to the tune of 30% of his payout plus VAT until I said that to save him the money, I would do the claim for him (he is deaf and partially blind and couldnt do it himeslf).

All good except that now he is saying that he wants to give me half of whatever he gets (several thousand)and will not be swayed at all. I know my dad and he will just pay it into my bank.

Its very generous of him but I understand that if anything where to happen to him including going into a care home, then that sum can be counted as part of his estate within seven years. He wont discuss it as he has no intention of dying (fair enough!) but if this week has taught me anything, its that things happen when you least expect.

Would it work if I were to "invoice" him for the work I did and also give him a receipt for the payment? That way he is a paying a bill not giving a gift, and while I would declare it, I would not pay tax on it as my income would not be high enough this year.

Your dad would only be liable to pay IHT if the joint estate of himself and your mum is over £650k. If not, then IHT isn't an issue. So far as care home fees go, the LA may look at any large gifts made within a relatively short period before he goes into a home, but I'm not sure whether the gift you describe would count; how much would he be giving you?

I dont think their estate would be that much, so thats good to hear!

He would be giving me around £5k.

His health shouldnt mean he needs care in a home, but I wanted to err on the side of safety.

I think there's an annual exemption of £3,000 per year for gifts, and you can carry forward the previous year's allowance if unused. The HMRC website section on inheritance tax gifts has good information. I don't know how amounts are calculated for care home costs, however.

Azure is right, your dad could use £3k of his 2012 exemption carried over to this year, plus £2k of his 2013 exemption. Just make sure that it's documented and a copy held with his copy will.

Just had a look and we should be ok.

Thanks for the help and information :)

Yes, that is the way to do it. If instead you invoiced for services then you would be liable to income tax on that income which is not what you want. Instead use the exemptions and keep a record of what was paid and why.