Windfall question

[kindfriendhelpedmeout]

I have just been given an extremely generous cash gift, of an amount that would take me and DP ten years to save up. It is going to enable us to finally save enough for a mortgage - I am in shock TBH.
Now, when the cheque arrives I am going to open up a building society account and put it in there so we can add to it for a few years to bulk it up.
What are the legal implications of being given this money - do i have to 'declare' it? Who do I declare it to and how? Do I pay tax on it or something like that?
TIA

There are almost no legal implications to receiving a large cash gift and you don't have to declare it either. One exemption would be benefit claimants because some benefits are reliant on having less than £x assets... Hiding cash is therefore a no-no. If you're not a benefit claimant, move right along.

Another possible exemption is if the donor of the cash gift dies inside seven years and their estate is big enough to attract Inheritance Tax. If your donor is in rude health or doesn't tip the IHT threshold, move right along.

There are tax implications on any interest your windfall generates so save your money wisely. Building society accounts at the moment are paying very poorly and the interest is taxed at source. So put as much as you can in tax-free options such as Cash ISAs as a first stop.... £5,340 can go in before April 2012 and £5640 after April 2012. If you have more than the Cash ISA limit and are not planning to use the money immediately check out longer-term savings options such as short-term bonds which tie your money up for 1, 3, or 5 years typically. You can't access your cash before the bond matures and the interest is liable for tax, but they usually pay a lot more than straight savings accounts.

Nice gift!!!

Should say on the Cash ISA that the limit applies per person. You mention 'we' above so I assume you have a partner? If you trust them not to run off with the money (and think very carefully about that because money can do bad things to nice people) and if they haven't used their ISA allowance for 2011-12 then you could start one each and effectively put £10,680 away tax-free.

If the benefactor dies within 7 years isn't it the estate that attracts the IHT rather than the beneficiary of any gifts? Might be wrong about this, just seem to remember this from when a relative died...

Ok, so maybe building society idea can be vetoed. Donor is well and only a few years older than me (36)
I trust DP completely so maybe 2 ISAs would be the mostpractical.
thanks so much!
Merry Christmas!

Correct, the estate does get the tax bill, but depending on source of gift, may impact on family relationships, if, for example, other children get less due to tax bill relating to earlier gift to one child.

Well, she has discussed it with her two daughters and they are happy for her to give me the money.

Sorry, but that is incorrect, if the person making the gift dies within 7 years:

IHTM10821 - Lifetime transfers: potentially exempt transfers (PETs)
The transferee (person that receives it) is accountable, IHTA84/S216 (1)(bb). This is because the person who receives the gift is liable for any tax on a PET that proves to be a chargeable transfer. In strictness, the transferee is required to specify all appropriate property (IHTM10802) received and the value of that property. The account to be used is the IHT 100. The time limit for delivering the account is 12 months from the end of the month in which the transferor?s death occurred, IHTA84/S216 (6)(aa).

For deaths on or after 9 March 1999, the deceased?s personal representatives must also include any gifts made by the deceased within 7 years of death in theIHT 400, FA99/S105 (1). This means that in most cases you will already have information about PETs made by the deceased and in practice you will only need to ask a transferee for an IHT 100 in exceptional circumstances (IHTM10503).

Different rules (IHTM10831) apply if the transfer resulted from the termination of a qualifying interest in possession.

There are insurances that one can take out to protect against such a charge (gifts inter vivos), but from the sounds of things this isn't necessary in this instance.