Gifting money -annual exemption being carried over

[Horehound]

Hello, my parents are gifting me £5k but mum was saying she's had to transfer 3k and then maybe pay £2 herself to anything we wanted to buy. I just did a quick Google and see the guidance allows for one year you are able to carry over any unused allowance and so I think this means on one year she could send a max of £6k thus sending me the £5k they want to gift is fine.
Is that correct? And what do we need to do to actually document the gift, if anything?
Thanks.

My understanding is that 6k should be fine if you did not receive any gift during the last tax year. Annual exemption is 3k but you can carry over 1 year's allowance.

Yes ok that's how I also understood it too. Thanks for confirming.
And do they just do the transfer and that's it? Do we need to fill anything out in a tax return form?

I am not aware of any specific hmrc forms.I gift 3k to my daughter every year and write a note( signed and dated) to confirm this transfer as a gift.

Ok, thank you :)

You can carry forward one year of last years £3k allowance has nothing been used

Yes £3,000 x2
Just describe it on tax stub or online banking description
Gift 19/20
Gift 20/21

There's nothing you need to fill out for any of this unless and until your parents dies. The gift allowances are relevant to the value of your parents' estates for inheritance tax purposes. Gifts over the limits fall out of their estates after 7 years, and only count partially from about three years I think.

If your parents estates are not likely to be near inheritance tax thresholds then they don't even need to worry. The only other consideration might be assets available for care home fees if needed in the future.

@Pythonesque Thanks. No it's not about their estate/inheritance just get they are only young 59's so I hope not anyway and that will likely be a huge sum so we will having to pay the tax on that.

This is just a nice gift to us for now :)

Well in that case there shouldn't be any issues with anyone's finances and tax. I find it interesting how often threads come up around gifting and tax worries. Though recently read up on some of the rules applying to other countries such as the US and Ireland, and began to realise where some of the concerns might be coming from. I grew up in Australia where we didn't have inheritance or gift taxes so it wasn't on my radar till i moved to the UK.

At some point it would probably be helpful for your parents to get some initial advice regarding inheritance tax planning as it is often the case that things they are wanting to do anyway might be best done in a specific manner. But if they are in good health it sounds like they are young enough there's no urgency.

@Pythonesque

Well in that case there shouldn't be any issues with anyone's finances and tax. I find it interesting how often threads come up around gifting and tax worries. Though recently read up on some of the rules applying to other countries such as the US and Ireland, and began to realise where some of the concerns might be coming from. I grew up in Australia where we didn't have inheritance or gift taxes so it wasn't on my radar till i moved to the UK.

At some point it would probably be helpful for your parents to get some initial advice regarding inheritance tax planning as it is often the case that things they are wanting to do anyway might be best done in a specific manner. But if they are in good health it sounds like they are young enough there's no urgency.

Yeh they have just had some advice and are considering the best options for them. :)

Apologies for resurrection of this old thread but does anyone know if the £3k annual exemption IHT allowance have to come out of your excess income or can it come out of your capital (savings). I want to gift £3k to our adult child and my hubby will also gift £3k to our remaining adult child. I have googled this so many times but can’t seem to get a definitive answer.

@Advocodo It can come from capital.

Thank you so much. I did think that but it was so,hard to find that when I googled.

If there’s not going to be any IHT liability then they don’t have to worry about any amount of gifting, even with a big enough estate for IHT, it drops of the radar after surviving for 7 years.
We gifted DD £25k for a house deposit, even if we dropped tomorrow, our estate is nowhere near the £1 million threshold for married couples to pass on without liability.

assuming your parents are still married to each other is their estate (incl house) worth more than £1 million?

if not, then discussion of the annual exempt allowance is irrelevant as it applies only to inheritance tax

if yes, then fine, they can carry forward from the previous year (only) so a gift 5k would be within the current year's 6k allowance.

You, as recipient, do not declare anything on your tax return

Parents, as the donor, would be wise to keep a record the the gift and make sure their will executor knows where that record is so when they die the executor has an easier job of declaring gifts on the IHT return

If parents live for another 7 years after date of gift (current tax rules!!!) then the gift drops out of their estate and the whole thing is irrelevant.

In simple terms the 6k can come from anywhere, be it savings, capital, or income

you are perhaps confusing yourself with the rules related to paying money to ANO from "excess income" as part of both your and their normal expenditure patterns. A one off gift would not qualify for that exemption from IHT and therefore your 3k is to be treated as using up this year's annual IHT allowance for you (and the same for hubby for his).

What counts as a gift?
Say you give your student child a regular allowance for student accommodation etc. And money to put into a pension. If all that totals more than £3000 and you drop dead - does that get counted as a gift for IHT purposes?

Is IHT a genuine concern for you?
never lose sight of the fact inheritance tax is paid by less than 5% of UK estates.
Old adage, do not let the tax tail wag the dog. Don't do things to avoid tax you will never be liable for in the first place!

To answer your Q
if the estate can show that payments did not impact the living standard of the person making them, ie they are expenditure from "excess" income then they are deemed to be part of the normal expenditure of the person paying them and do not count towards the 3k limit.
If on the other hand the amount paid does reduce capital (eg savings balances) then they are not part of the normal expenditure of the person and would count as a gift re the 3k limit.
Paying the bills for a student for a few years all depends on what happens to your total bank balances: down = IHT gift, same or increasing = exempt normal expenditure

IHTM14131 - Lifetime transfers: specific lifetime exemptions: summary - HMRC internal manual - GOV.UK

IHTM14231 - Lifetime transfers: normal expenditure out of income: introduction - HMRC internal manual - GOV.UK

What does ANO stand for please? Annoyingly as we live in the South East our property exceeds the £1million you can pass on without IHT. I think I understand the £3k gift now. It’s an allowance just like you get your personal tax allowance per year. Thanks for your post.

ANO usually just means "another person".

The £3k isn't really an allowance like your tax allowance. It's a potentially exempt transfer. Potentially exempt from IHT.

The recipient does not need to declare it anywhere and there is no "allowance" for them, a thousand people could gift them £3k each and the recipient would have nothing to pay or declare.

It's not a PET. It is an annual immediately IHT exempt gift allowance.

There's also a small gifts allowance of £250 which can be given to as many people as you like.

My parents do an annual £6k gift to me and £250 each to DCs and DH which are all IHT exempt.

Also regular gifts out of excess income which cannot come from capital and do have to be shown to be from excess income by listing parents outgoings and income.

Also regular gifts out of excess income which cannot come from capital and do have to be shown to be from excess income by listing parents outgoings and income.

Yes, I set this up for my mum to do, because she had over £3k pm income and didn't need even half of it. So she regularly (monthly) gifted £250 per grandchild.

But noone asks to see outgoings and income. I can show it on her regular bank statements, and show what else she spent her income on, if I need to. And each grandchild has an email saying what it was. But noone has ever asked to see any of that, even on the IHT forms, or during probate.

But, "regular" doesn't have to be monthly, it can be quarterly, or annually. Anything regular. It's an underused allowance!

Sorry, yes, the £3k isn't a PET, anything over would be.

the 3k is an annual exempt "amount"
it is NOT a potentially exempt transfer (PET)

It is an allowance in the sense that you use it or lose it (subject to the carry over of an unused amount for the next 12 months)

you are fundamentally wrong in says a thousand gifts of 3k can be made. Such cannot be done, the person making the gift has one 3k allowance which can split amongst as many people as they want, but it cannot exceed 3k in total across all recipients
IHTM14143 - Lifetime transfers: annual exemption: multiple transfers - HMRC internal manual - GOV.UK
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Yes my dad passed away 2 years ago and HMRC didn't question anything or ask to see bank statements etc.

Regular can be anything as you say. My parents wrote a letter saying they wanted to give regular gifts and paid school fees each term and into the DC's JISAS and JSIPPs. Managed to give away a substantial amount. It is underused allowance!

The good thing about all the research on IHT I did for my parents means DH and I are well prepared and will start gifting early as my parents left it quite late. Providing RR doesn't change the rules of course.

Agree I was wrong about it being a PET.

But you have misread the last paragraph of my post. I was talking about the recipient getting thousands of £3k gifts, which I think they can. I was using this to dispel the suggestion from the person I was replying to who made it sound as if they thought the allowance was for the recipient, it's not, it's for the doner. As you say.