Giving insurance payout to unmarried mum

[flowersWB]

Hi all. Looking for a bit of tax advice from anyone in the know about such things.
My Dad died suddenly earlier this year. He and my mum hadn't ever married so obviously she became a non-entity legally and there was no will so my brother took charge of the admin etc. My Dad had an insurance policy for personal injury which seems to have included accidental death as well so it has paid out. There was no named beneficiary on it so my brother has claimed it as next of kin. It's a lot but not enough to trigger inheritance tax or anything (the rest of my Dad's estate totalled about 12000 so inheritance tax is a non issue) and we've cleared any other taxes and debts he had outstanding.
The issue we have is we want to give the whole amount of money back to our mother. She needs it to live on. Is she allowed to receive this money without paying massive taxes on it?
Sorry for the ramble, I'm really not sure where she stands or who to ask.

So the insurance policy proceeds form part of the estate if they weren't left to anyone. And you and your brother have inherited the net estate between you as intestacy applies. Therefore anything you choose to give to your mother will be a gift from you to her.

Assuming you are in England or Wales, you can make a gift of £3,000 each year and it will be exempt from Inheritance Tax. So if both you and your brother did this in early April (either side of tax year end/start) you could gift £12k in total fairly soon.

Anything more than this would be a Potentially Exempt Transfer and while there's no tax to pay upfront, it would be a potential liability for your own estate if you died within 7 years of making the gift.

Is she receiving any kind of means tested benefits? That would cause more of an immediate problem.

Hi Sunseed. Thanks for responding! No benefits, she's in her 60s and still working full time. So if we were to transfer the money over to her as a potentially exempt transfer. Do we notify hmrc? It feels like no one is really bothered. They've not checked up to see if we've followed intestacy rules so far etc?

I don’t think you have to inform anyone. If your or your brother’s own estates came to need to go through probate within 7 years, then the gift would be declared at that point, I believe.

No requirement to particularly tell anyone, as such, but it would be prudent to have a clear written record of where the money has come from and where it's going to so there is a paper trail in case there is any query raised in future.

I think you and your brother could do a deed of variation so that your mum can inherit directly from the estate

www.teeslaw.com/article/deeds-variation

Then there will be no need to worry about the potentially exempt transfer stuff as it will be your mums inheritance directly from the estate.

Sorry for you loss btw

Thanks so much for the advice everyone!