gifting house sale money to grandkids and 7 year rule

[ElatedHazelUser]

I desperately need advice, as I know NOTHING about legal matters! Please explain every step to me, in simple terms.
If my father sells his small rental property and wants to give the money (probably £120k at the most) to his 4 grandchildren, what money will he have to pay out? Any taxes?
Can he just give them 30k each?
Also, because they are varying ages from 5 - 13years, can this money be put into some kind of trust fund, that I manage as their parent? (That my Ex cannot have any access to if anything were to happen to me?) If so, how do I do this and what is involved?
If the money is in trust, can anyone touch this money? Could I at any point move the money into other savings accounts or ISAs etc if this seemed a better option for them?
What would happen if their grandad died within the next 7 years, would their gifted money in the Trust Fund be taken back off them?

(Do you have to pay to set up a trust fund? also, is it in ONE parent's name or can it be solely in the child's full name?)

If he dies within 7 years it will count as part of his estate for IHT.

Also I think he'd be liable for CGT if its a second property.

He may also need to check this wouldn't be classed as deprivation of assets should he need LA funded care at anytime in the future.

The first question is - is his estate even caught by IHT limits? The threshold is actually quite high and only 4-6 % of estates are caught.

For a moment assuming it’s not liable to IHT on his death:

he can give away as much as he likes and the are no taxes payable by anyone.

I would put 9k for each child in an ISA and then the balance for each child in premium bonds in their names with you as responsible adult : moving £9k over next April and then again the following financial year until all £30k in an isa wrapper for each dc

the dc will each be the legal owners of the isas and PBs.

if it is a £1m+ estate and iht payable the beneficiaries pay the tax. It tapers from 40% to 0 over 7 years so its not eg 40% if he does in 5 years.

it’s quite a complex area but I would try to avoid setting up trusts as they are mega complicated. And expensive to set up.

*CGT is a good point, sorry, though he would be liable if that’s due, not dc. Though as it’s a low value ppty, and there are allowances, it might not kick in.

Is he likely to need care in the future? There is no time limit for the LA to look into Deprivation of Assets for this.

Yes he’ll need to pay CGT on any gain he makes from the sale proceeds (sale price minus purchase price = gain).

There are some reliefs against this CGT but they are limited and for specific circumstances only. It may be worth him getting advice about the CGT as it can be complicated.

Agree that the IHT position depends on how much money/assets he will be leaving overall and whether it comes to a total above the IHT threshold. If it is above and if he dies within 7 years then yes some IHT may be payable on this money. But it’s tapered as pp said.

Agree about ISAs in the kids’ names. No need for a trust and agree trusts are expensive to set up.

@ElatedHazelUser it is quite confusing and things do get mixed up.

IANAL but this is how I break it down.

Selling a second home - the owner may be subject to Capital Gains Tax. The conveyancing solicitor should be able to advise.

Deprivation of assets - there is no time limit how far back a Local Authority can look back. This only becomes relevant if your Dad needs to pay for care, be it in his own home or in a care home. He would have to use up nearly all his assets e.g. selling his main home first.

Inheritance Tax - tax is normally paid by the estate not the beneficiaries. If your Dad gifts £120k and dies within 7 years because this is less than the £325k tax free element all that happens is this is reduced to £205k for offsetting against the rest of his estate. It is slightly more complex but no tax is due.

Investing for the grand children. I agree with a pp. Put the maximum in ISAs for this year, the rest in premium bonds. Each April drip more into the ISAs. Make sure you check the ISA rates and when appropriate transfer to higher paying ISAs.

"If my father sells his small rental property"

In this case there will be capital gains tax (CGT) to pay. For example, if he bought it for £80k and sells it for £120k then that is a £40k profit which will be taxed.

There are various allowances available and costs that can be deducted so that less tax is paid, and the rate of tax also depends on your father's income in that year.

You will need to look into it in detail based on your father's particular situation but assume that at least some tax will have to be paid on the profit. The rate is currently either 18% or 24% depending on your's father's situation.
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"Also, because they are varying ages from 5 - 13years, can this money be put into some kind of trust fund, that I manage as their parent? (That my Ex cannot have any access to if anything were to happen to me?) If so, how do I do this and what is involved?"

The easiest way of doing this is simply to open a child savings account with a bank in the name of each child. Just google something like "Children's saving account". The child is the beneficiary and the named adult is the trustee.

Just a couple of random examples:

"To open a First Saver account you must be 18+ and opening the account in trust for a child under 16."
https://www.natwest.com/savings/first-saver.html

"To apply for this account, you must be

• At least 18 to save for the benefit of a child under 18. The adult operates the account as trustee for the child"

https://www.barclays.co.uk/savings/instant-access/barclays-childrens-savings/ .

(That my Ex cannot have any access to if anything were to happen to me?)

I presume that in your will you have already nominated somebody to be their guardian in case you die? They would likely be the person that you nominate.

Otherwise, you would likely need to alter your will to specifically state that if you die while still trustee of their bank accounts that you nominate another named person to replace you.
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"If the money is in trust, can anyone touch this money? Could I at any point move the money into other savings accounts or ISAs etc if this seemed a better option for them?"

Until the child reaches 18 only the adult who is named as the trustee on the account can move the money. But, yes, you can certainly move it to other accounts.
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"What would happen if their grandad died within the next 7 years, would their gifted money in the Trust Fund be taken back off them?"

It depends if he had made any other gifts before this one. Assuming this is the only gift he makes then, no, there would be no IHT for the grandchildren to pay.

What would happen if he did die within seven years is that gift would be counted as still belonging to him when the value of his estate is worked out for IHT purposes.

So, depending on his circumstances, he can leave up to £500k to his children or grandchildren without paying any IHT (or up to £1 million if he is a widower and your mum passed away first while she was still married to him).

That £120k gift is counted as though it was still in his estate and then, if his total estate is over the limit then IHT is paid from his remaining assets (not including the gift) before his estate is distributed to the beneficiaries.
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"(Do you have to pay to set up a trust fund? also, is it in ONE parent's name or can it be solely in the child's full name?)"

As above, the easiest thing is to open a children's savings account at a bank. There is one named adult who is the trustee and one (or more) named beneficiary who is the child.

There is no cost to open a bank account.

If you put money for your child.
into an isa in your name, an ex would be able to claim it is yours. Why would you think they may have a claim to your money if you die?

If you put it in a junior isa, it is legally the child's money and the donor has relinquished ownership. No one can access the money if you die. The down side of JISA's is that the child gets the lot on the day they turn 18, so need to be sensible enough to not blow it all down the pub.

I hope I am using mumsnet correctly...I don't even know if this will work, but I am trying to respond to the comments.

Thank you to all that have given advice. In response to the mention of a 'will'...I don't even have one! (Now I have something else to worry about!) Just for reference, I am a single parent and have nothing whatsoever to leave my children, which is why I didn't think I needed a will. I rent where we live and have no savings. Please could anyone advise do I need a will? What do you even put in one? and are they expensive (I am on benefits at the moment, due to not being able to work full time in a job that pays more than the minimum wage), so I have to be careful with what I spend.

Also in response to my Father's assets. He does not have more than £325k in property or savings.

I am hoping he will never need care as he ages, or that I could help where possible if he did. But as he is right now, with not needing care and wanting to gift the 120k his grandchildren, what would happen if he needed care in 10 years time for example? or even 5 years? how can the LA decide it is a deprivation of assets, if it genuinely wasn't and at the time of gifting my father was in perfectly good health? What do they do?

Can I also ask if the money goes into each child's saving account, if I were to die, is it in their name, so they can just access it? Meaning, that their remaining parent (my ex) would then have full control over using it (probably for himself) if they were still under 18yrs? What rights or control could they have?

Or alternatively, if it wasn't in their name, but had me as trustee, and then I die, doesn't the same thing happen? (Where the money would then be my children's, but the remaining parent with parental responsibility -my ex, could then do as he pleases?) Because I have assumed here that my children are my next of kin? Apologies if I am not making sense, as I am not sure if I understand this whole process fully!

Who can access premium bonds? Only named adults? or children? I don't even know how you get them! Are they worth having?

"Just for reference, I am a single parent and have nothing whatsoever to leave my children, which is why I didn't think I needed a will. I rent where we live and have no savings. Please could anyone advise do I need a will?"

In your situation, the main thing about having a will is to provide certainty for your children if anything were to happen to you before they get to the age of 18.

Would you want them to go and live with your ex for example? If not, then your will should include naming a guardian to care for your children and a trustee to look after their money (this can be the same person).
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"What do you even put in one? and are they expensive"

It can literally be something as simple as "I leave everything equally to my children and I appoint XXX as their guardian"

As to cost, a number of charities offer free will writing services (they often ask that you leave something in the will to them in return).

Here is a whole list of charities that do this:

https://www.nationalfreewills.net/charity-logos/

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"how can the LA decide it is a deprivation of assets, if it genuinely wasn't and at the time of gifting my father was in perfectly good health? What do they do?"

Deprivation of assets is where you deliberately give away your assets for the main reason of avoiding care home fees.

Intention is the most important factor to consider. When you gave away the large sum of money or transferred your property to a grandchild, was it reasonable for you to expect to need care and support?

The local authority must prove that you were aware that you might need care in the near future, otherwise, there is no deprivation of assets.

Frankly, selling a rental property is not going to be a problem (unless he's recently been told that he needs to go into care in the very near future).
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"Can I also ask if the money goes into each child's saving account, if I were to die, is it in their name, so they can just access it? Meaning, that their remaining parent (my ex) would then have full control over using it (probably for himself) if they were still under 18yrs? What rights or control could they have?"

The accounts will be in each child's name and show you as the trustee. If you were to die before they were 18 then they would not be able to access the money, another trustee would need to be appointed.

If you named somebody in your will to be that trustee then they would look after the money. If you did not name anybody in your will then (if he has parental responsibility) it would be your ex that would have control over the accounts.
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"Who can access premium bonds? Only named adults? or children? I don't even know how you get them! Are they worth having?"

I would disagree with the posters who mentioned premium bonds. No, I don't think they are worth having.

I would suggest opening a children's savings account for each child with you as the trustee. Pay the money into each of those accounts.

https://www.moneysavingexpert.com/savings/child-savings-tax-free/

Then think about putting some of the money into a Junior ISA. You can put in up to £9,000 into a Junior ISA, so you won't be able to do it all at once.

https://www.moneysavingexpert.com/savings/junior-isa/

Any money that you put into a Junior ISA you cannot get out again until they are 18. So it might be worthwhile keeping some of their money in the savings account in case something comes up before they're 18 that they might want to spend some of the money on.

If you are making a gift to four grandchildren do not under any circumstances get them premium bonds. Have you seriously considered how it would work out if one of them had a large win? And no, it couldn't be shared.

If the money was given to the parents to invest, and they bought premium bonds, I guess that could be ok but still possibly a problem

CGT will be due at point of sale. Nothing to do with gift/IHT.

Has he ever lived in his "small rental property"? How long has he owned it? What did he pay for it? What is it worth now? What was the mortgage on it?

He doesn’t actually have enough money to give loads away. I would look at how much he needs to live comfortably.

He will have to pay 20% capital gains tax if he has another property

Care is very very expensive.

The most expensive I have heard of us £12,000 per month in a posh care home.

It might be that you wouldn't be able to look after him how ever much you wanted to

For example if he got dementia and wandered out of the house on his own in the middle of the night.

The front door cannot be fully locked as it's a fire risk.

So he should think very carefully before giving his money away.

You need proper accountancy advice not mumsnet!and definitely get a will asap.