Tax implications re gift?

[ginmakesitallok]

As part of a legal settlement my DM's partner agreed to give her a sum of money. DM doesn't need or want the money so has asked him to give it directly to me. It is a significant amount. Assuming he doesn't die in next 7 years, are there any tax implications for me?

There are no immediate tax implications although obviously any interest etc that this money may earn will be taxable.

However, based on what you've said it's not his death within 7 years that will trigger a liability but your mother's as effectively it's you mother who has given you the gift.

But it's not my mum giving me the money, it's him?

But he is legally obligated (I assume) to give the money to your mother. Your mother has redirected the cash to you. He would not be giving you the money if he wasn't obligated to give something to your mother in the first place. Therefore it's your mother that's giving something up without getting something in return, not him.

But how would tax man know that?

And more importantly, dm's estate wouldn't be enough to be liable for inheritance tax anyway?

The tax man wouldn't know it up front, necessarily, but if you didn't report it they'd most likely find it eventually and then you'd have to pay penalties as well as the tax.

However, if your mother's overall estate and plus any gifts she has made in the 7 years before her death is less than £325,000 (may be more if she has been married and her husband has died) then there's no IHT due anyway.

So, how does inheritance tax work? When someone dies do they (whoever they are!) go through all bank records for the last 7 years? If you've had a gift from someone who then dies are you meant to declare it? What happens if you've lost touch and aren't aware of the death?

Thanks for the info, very interesting!

It depends... if the estate is small there's very little done I think.

But it's the job of the executor or the administrator to pull together all relevant info and it's their responsibility to get it right. I've never done this job but I'm assuming if sufficient information is not available then they will go through bank statements and legal documents to pull the information together. They're probably not too bothered about few thousand here or there since there are various reliefs dealing with small gifts, it's the tens and hundreds of thousands that really need to be traced.

Don't forget that you can receive a gift up to a certain amount from anyone in each tax year free of tax. (The amount varies according to your relationship to the person.) This can also be back dated for one tax year (or at least it could until recently - would be best to check. Then your liability to tax goes down by one seventh for every year that the person survives.

This is the info you need - Tax free gifts

fortyplus - only gifts on the occasion of marriage depend on the relationship. Others are fixed reliefs.

Thank you for the info. from further reading am I right in thinking that if it is considered a gift from ex, and he died within 7 years, it is his estate which pays the inheritance tax, rather than me? (I'm not planning on bumping him off though!)

No it's the person receiving the gift that is liable

Notmadeofrib - the HMRC website says that person who receives gift is only liable if the estate can't pay the tax (or if total gifts exceed the inheritance tax threshold?)

What happens with IHT after someone dies is that you look at the gifts they made within 7 years before they die chronologically and apply the nil rate band. So if your gift is the first one to get caught and is less than £325k then there's no tax to pay. But if there was a gift within 7 years but before yours that was £350k then this used up all of the nil rate band which means your gift will become taxable. And you have to pay the tax. The estate pays the tax on assets in the estate not one the ones that were gifted before death.