Question

[sunshineday35]

My brother is currently looking for work and my parents have offered to pay him an amount each month to keep him going.
Question- is this tax free? And does he have to pay inheritance tax on it?
Thanks

How much are they planning to give him, how old are they all, does he have any other income or benefits coming in

So- he is not claiming benefits. He is over 22. Parents are in 70’s and approx £1000 per month.

…..and he has no other income coming in.

It is tax free as it is a gift. The only way inheritance tax could come into play is if one of your parents dies within 7 years of the gift, and their estate is sizeable.

Thanks- what is the threshold for the estate?

@sunshineday35 The threshold for the estate is £325,000 per parent. But if a property is part of that, and it is given to children or grandchildren, and the value of the estate is lower than £2 million, then the threshold increases to £500,000.

I hope that makes sense!

Thanks- is that £500,000 per parent?
So say house was worth £500,000 or under and parents didn’t have excessive savings then inheritance tax doesn’t apply?

@sunshineday35 It is £500,000 per parent.

So if your parent's house is worth £500,000 (so £250,000 each) and there is not much else then IHT will not be payable, so the gift to your brother will be totally tax free.

I believe that you can gift an amount to someone and as long as it’s classed as a regular payment and from income but not from savings, then it’s tax free and not included for inheritance tax purposes. The crucial part is that it’s from income only. So if your parents can live on their pensions, pay all their bills, and still afford to gift that amount of money from their pensions then that would be ok.

Yes, regular gifts from surplus income can be free of IHT regardless of the amount given and the size of the estate, but the rules are complex. Your parents should take proper advice if they want to take advantage of this exemption.

Thanks- where are the complex rules? And where to get the advice on these.

Also just trying work out- the threshold for the threshold as it were. eg value of estate and regular gifts as it were.

IHT will only be payable if the estate is over 1m so start with that. The gifting is only potentially an issue if they both die in the next 7 years AND the estate is over 1m.

Here’s an article about the afore mentioned exemption - https://www.mandg.com/wealth/adviser-services/tech-matters/iht-and-estate-planning/exemptions-and-relief/normal-expenditure-out-of-income

How long do they plan on giving him 1k a month, have they left themselves enough money for themselves if either or both of them need care.

Sorry for the delayed response. I thought I'd posted this already!

If you want to try to understand the rules, they are in HMRC's IHT Manual starting at IHTM14231 - Lifetime transfers: normal expenditure out of income: introduction - HMRC internal manual - GOV.UK. You can find a summary at The normal expenditure out of income exemption | Tax Adviser.

If gifts are within these rules, there is no IHT liability regardless of the amount given. A solicitor or tax adviser would be able to give advice.