Mum wants to gift me some money

[Ella19902]

My dad passed away last year & my mum
wants to gift me some money, £200k! Appreciate this is a nice problem to have but I am wary of the tax implications later down the line. She is keen for me to use it to pay off my mortgage. This is such a large amount of money that I’m a bit scared by it! Any advice? Should I take it and if so what should I do with it?

Wow, how lovely of your mum.

At the moment there are no tax implications if your mum lives for more than 7 years after the gift. This could of course change. It is also possible that if your mum needs care later it could be seen as deprivation of assets, but this depends on many things, such as how much money will it leave her with.

In any case, paying off your mortgage sounds like a good plan.

Is her estate likely to be liable to inheritance tax (assuming she owns a property the limit will probably be £1m)?
Gifts are only a problem if inheritance tax applies, in that they will be counted as part of the estate if she dies within 7 years of the gift - and tapering does also apply between 3&7 years.

Take it. IHT is NOT your problem, it's the estate's. If your mother is in good health, there is NOTHING to assume that this is a continuing care tax dodge.

If it is within two years of the passing of your DF and your DM inherited at least £200k from him, your mum could do a deed of variation to make you a beneficiary of this £200k. No requirements on living more than 7 years then.

I think your DM should take legal advice so that you both understand implications of this gift

In general there is no tax on gifts.

Firstly IHT. If this is your mum's first substantial gift within the past seven years, don't worry. If your mum has made substantial gifts to other people or into trust in the past seven years exceeding 325k in total (eg 200k to you and more than 125k elsewhere), I'd get more advice about whether IHT might be due and who would pay it in the event of your mum dying within 7 years.

The first 325k there is no IHT to pay, above that the recipient of the gift may need to pay the IHT within 6 months of death, not the estate. If you are the sole beneficiary in your mum's will after Probate is granted you would then receive her estate.

Deprivation of assets - if your mum later was in council funded care and the council believed she reasonably expected to need care at the time the gift was made, then they may seek to recover the funds. For example if your mum was frail and in declining health currently and it was looking like she may need care. If she is in good health and independent currently that is unlikely to be a concern.

Also I presume your mum has other assets that she is keeping, so if she needed to pay for care then these would be used first, it would only be if her assets were exhausted that the council might look into previous gifts.

If you are worried that the gift might become subject to IHT or deprivation of assets I would still accept it, but use it with the knowledge that it is possible it could be reclaimed (partial for IHT, possibly in total if deemed deprivation of assets for care costs and her other assets are exhausted). If you paid off your mortgage, you could always remortgage in the small event you need to return the money. Don't put it into a risky investment or spend it on holidays!

Is it just £200k she is gifting or is there more to other people?

If she gifts more than £325k in total and dies within 7 years, the first £325k won't be subject to Inheritance Tax but the amount over £325k will be, and payable by the recipient, not the Estate. And the rest of the Estate will be taxed at 40% because the nil rate tax band has been used on the gifts.

"Any Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift."

www.gov.uk/inheritance-tax/gifts

The first 325k there is no IHT to pay, above that the recipient of the gift may need to pay the IHT

There is (currently) an additional £175k IHT free allowance for passing your main home to direct descendants. Bringing the IHT threshold to £500k. And she also ‘inherits’ your Dad’s allowance. Hence IHT not being an issue for estates worth yo to £1m.

Only 4% estates pay IHT but it is commonly brandished as something to be wary of on MN.

Likewise Deprivation of Assets is only an issue if the gift was made with the intention of avoiding care costs at a time that it was clear that your Mum needed a care home. A minority of people go into a care home, and she had her house which can be sold to pay costs. The total costs of care are also offset by pension income , Attendance Allowance and any other income / benefits.

Whilst that is true, over 325k of gifts the recipient would usually need to pay IHT on the gifted amount within 6 months of the death. Then after Probate is granted the estate would be distributed, taking account of any other unused nil rate bands. A probate loan can be taken out for this purpose.

In this scenario it would only be relevant if the mother had gifted more than 125k in the previous seven years (including gifting into a trust).

No she shouldn’t. That means the gift ‘spends’ her IHT allowances where the DM gifting has the benefit of falling out of the estate if DM lives.

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