Help me understand tax implications on large gift of money?

[Sailawaygirl]

Hi all. I feeling silly as I can't make sense of this by googling. Basically my mum and aunty want to gift me a 1/4 share of a house sale ( after death of another sister). There was no will, and I had previous post where it was mostly agreed on mumsnet that I was greedy ect for expecting this but family have agreed without my pushing or discussing it.

I would like to understand the tax implications. No moral judgements on this post please.

I know that money gifted above 3k comes under the 7 year rule of inheritance tax.
But would capital gains tax be paid on the gift given to me? I dint think so as the house money has been inheritated and then will be gifted on but my mum thinks capital gains tax would be charged?

You are misunderstanding the situation. Inheritance tax is paid by the estate not by the recipient (You). Gifts over £3k count towards the inheritance tax threshold.

From the limited information provided I think your Mums sister died owning a house. There was no will so under the laws of intestacy your Mum and her remaining siblings inherited the house. Your Mum and the other beneficiaries have decided to gift you a 25% share of the property.

In order to advise you is this an actual share of the property or is the property going to be sold and you gifted 25% of the sale price?

If the house is sold for more than the probate value the difference is subject to capital gains tax (CGT). CGT would be deducted from the sale price before you receive your share. In this situation your Mum may want to consider a deed of variation which, in the unlikely event she doesn’t live 7 years, means her estate would not be liable for IHT on this gift.

If you are actually gifted 25% of the property then there are other considerations. If you don’t already own a property you lose your first time buyer status. You also become liable for CGT if the property is sold at a later date. There is also the question of who lives in the property, who is responsible for maintenance and bills etc.

HTH.

Thank you @Propertylover that's what I thought.
Yes they are planning to gift me 25% share of sale money from house and alittle more from sale of assets. Its all going through probate and sale now.

I just had a semi argument with my dad when he said they were worried about tax implications of when probate comes through and she is able to gift me money. But I think they can just transfer the moment strait to me if that's the plan.
I'm hoping to be able to use some of it to make a lump sum payment on my mortgage.

No cgt on a cash gift. Just possible iht. It’s a ‘PET’ (potentially exempt transfer); if she dies within 7 years of the gift it will be brought back into account and use up (part) of her tax free allowance. Can deduct annual gifting allowance of £3k if not otherwise used and carry forward 1 year only to give max £6k gifting allowance. If your parents are together and married your dad can also gift £6k (after she gives it to him if necessary) as no tax between spouses. So max total £12k tax free. If she dies within 7 years and the amount of the gift exceeds all her nil rate band allowances then iht would be due (payable by you) on the excess above the allowances. The tax on the gift is tapered (if there is any) if she survives 3 years. This is commonly misunderstood, if there is no tax on the gift there is no taper. Ie you can’t taper the value a gift that uses up part of her nil rate band.

If she did a deed of variation in your favour within 2 years and before gift made it would be as if the will left it to you and no iht implications for her estate.
is IHT actually an issue for your parents? They could have total nil rate bands of up to £1m depending on their circumstances.

cgt could be payable by the estate but this is only on the difference between the date of death probate value and the sale value. There is a tax free uplift for cgt on death (ie estate ‘base cost’ is date of death value) if the value has increased between date of death and sale then there are ways to mitigate this by ‘appropriating’ the property to the beneficiaries to use all of their allowances as opposed to just the one allowance for the estate.

Does she have a lawyer because basically they can just agree a variation to the Will.

@Sailawaygirl try not to argue with your parents. Just encourage them to get legal advice.

When it comes to larger sums of money people rarely like to be told they are wrong. Leave it to the legal professionals - they will need them to do the conveyancing anyway.

Now you have clarified its 25% of the house value, it is worth them asking about a DOV.

Using it to pay a chunk off your mortgage is very sensible. There maybe a 10% cap on overpayments in one year. You can exceed this when remortgaging. Alternatively put £20k in an ISA and the rest in interest bearing accounts and drip feed 10% off your mortgage each year.

Thank you @Propertylover yes I am due to remortgage and as I am maternity leave my finances will look terrible !! So would like to put down a lump sum to help!

My parents are saying they are going to give me tax free allowance each ? ever year of 3k each year as well but I think this is separate to the potential inheritance gift but need to check. Last week they said they were going to give me it in small chucks because they were worried about tax. I don't mind them doing that if they feel it's best but because of remortgage a big lump would be helpful. I will suggest legal advice to them.

Why are people mentioning DOV when there is no will?

Given there is no will, I am assuming that your mum and aunt get 50% each? Is your lump sum coming solely from your mums half, or is your aunt and mum giving you half each?

Assuming your lump sum is solely from your mum, she can give whatever she wishes, and it will only come into the IHT calcs if she dies within 7 years.

The first post from @22mumsynet gives the details of the tapering, and as she says, the lump sum would only attract IHT if it is above your mums nil rate band (currently 325k I think).

If the lump sum is likely to be close to the nil rate band, then maybe speak to parents about ensuring the gift comes from both parents, ie 162k each. The money may have to come from a joint account if they have one.

You really don’t need advice but if you need some more info, the MSE forum is very good.

With a cash gift there is no actual tax to pay now. Only POTENTIAL tax if they die within 7 years and that depends on how much the gift is and how much the rest of their estate is worth. There could be none. There was more info in my pp. A DoV would remove the worry of potential tax. This CAN still be done if there was no Will.