I hope someone can help me here. I have a client who has asked me a question which I have no idea about. She wants to pay for flights for her son's family to come over from Australia which is going to cost nearly £5000. She is worrying about the gifting limits. She thinks she may not last for many more years and doesn't want to cause her son any problems. Does anyone know anything about this? And is it relevant that the son lives in Australia?
She can gift £3k per year without any effect upon inheritance.
There is also an exemption that you can gift £5000 tax free if your son or daughter gets married (could that one be applicable here?).
Don't know about the Australian tax implications of receiving the gift but those are things to consider from your clients side.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thanks Shaun. I knew about the £3k limit but wasn't sure if paying for flight tickets would be classed as a gift. It is the same as giving money thought isn't it.
Regular gifts or payments that are part of your normal expenditure
Any regular gifts you make out of your after-tax income, not including your capital, are exempt from Inheritance Tax. These gifts will only qualify if you have enough income left after making them to maintain your normal lifestyle.
These include:
monthly or other regular payments to someone
regular gifts for Christmas and birthdays, or wedding/civil partnership anniversaries
regular premiums on a life insurance policy - for you or someone else
If a sum such as £5,000 were to be given out of after-tax income each year I think it could fall under this rule. Maybe someone with an IHT background could fill in the gaps on what flexibility there is on the "regular" amounts. You have to be able to show, in detail, that the amount is "out of after-tax income" if the amount is more than £3,000 (see IHT403 Page 6).
I think this allows you to prevent you capital growing year on year if you have surplus income and don't mind distributing the surplus on a regular basis. Might involve a bit of record keeping! But I'm sure the readers here know all about keeping records.
If her net estate is less than £325k (£650k for married couples/civil partners) then no IHT will be due. In other words, she can gift up to that amount without IHT implications. Otherwise she can make annual gifts of the amounts indicated by Shaun & Ian (plus individual gifts of £250 per person per annum - excluding the recipient of the £3,000). After that, she must survive for 7 years to avoid a tax of 40% on the amount gifted (payable by the estate, or by the recipient).
Note that if property is held jointly - such as the family house is likely to be - that will be excluded from the estate of the first person to die for IHT purposes, because the full value will fall into the survivor's estate. Check the tenancy has not been "severed" however, because, if so, each person's share is liable to IHT on that person's death (if it brings the estate value above £325k).
Thank you everyone. The £3k plus £250 for each of the rest of the family will almost cover the tickets. I wish my parents would start thinking about this and give me all their money!
