Tax question

[Dnk]

Just incase anyone's in the tax game and is on here or been through this themselves

Gifting and tax implications

Basically you can gift say a family member up too £3000 per year tax free as long as you live 7yrs from the date of the gift.

Anything over this is taxed as inheritance tax at 40% even if you live 7yrs + ? not sure on this bit 

Anything given by you to them counts, not just cash so paying for say an engine rebuild or their rent etc 

 

[rider]

The limit is £3k per year total, for all gifts. That could be £3k a person if its only one gift but if say you have two children then it'd be £1.5k each per year. I have two children so I gift them £1.5k each a year.

Inheritance tax only kicks in after the threshold is reached and with married couples where the estate passes from one to the other then on the survivors death there is a double IH allowance on any residual estate. So if you are married, you need a pretty large estate or a flat in London before you need to be concerned with IH tax.

For property upgrades or purchases then we have well funded family trusts set up that pay for houses or upgrades as a interest free loan on the never never, only redeemed when the property is sold or the person dies.

[rider]

Another aspect on gifts is if you miss a year then you can carry forward that years allowance. So if you gifted nadah last tax year, you can do a double dose this tax year.

[Dnk]

4 minutes ago, rider said:

The limit is £3k per year total, for all gifts. That could be £3k a person if its only one gift but if say you have two children then it'd be £1.5k each per year. I have two children so I gift them £1.5k each a year.

Inheritance tax only kicks in after the threshold is reached and with married couples where the estate passes from one to the other then on the survivors death there is a double IH allowance on any residual estate. So if you are married, you need a pretty large estate or a flat in London before you need to be concerned with IH tax.

For property upgrades or purchases then we have well funded family trusts set up that pay for houses or upgrades as a interest free loan on the never never, only redeemed when the property is sold or the person dies.

im a tad lost with the 7yrs part and if you gifted say for ease of numbers £10k 

[rider]

The government website explains things quite clearly so its worth a visit.

https://www.gov.uk/inheritance-tax/gifts

Quote

Annual exemption

You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’.

You can give gifts or money up to £3,000 to one person or split the £3,000 between several people.

You can carry any unused annual exemption forward to the next tax year - but only for one tax year.

The tax year runs from 6 April to 5 April the following year.

Example

In the 2019 to 2020 tax year, Mark gave £2,000 to his daughter Jane. If he died within 7 years of the gift, this would use £2,000 of his annual exemption.

In the following 2020 to 2021 tax year, Mark gave £4,000 to his other daughter Sarah. If Mark died within 7 years of the gift, this would use his annual exemption of £3,000 plus the £1,000 of annual exemption left over from the previous tax year.

Even if Mark dies within 7 years of giving these gifts, there’s no Inheritance Tax to pay.

and

Quote

The 7 year rule

No tax is due on any gifts you give if you live for 7 years after giving them - unless the gift is part of a trust. This is known as the 7 year rule.

If you die within 7 years of giving a gift and there’s Inheritance Tax to pay on it, the amount of tax due after your death depends on when you gave it.

Gifts given in the 3 years before your death are taxed at 40%.

Gifts given 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.

Taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold.

Taper relief

Years between gift and deathRate of tax on the gift

3 to 4 years32%

4 to 5 years24%

5 to 6 years16%

6 to 7 years8%

7 or more0%

 

[Scooter]

3 hours ago, Dnk said:

im a tad lost with the 7yrs part and if you gifted say for ease of numbers £10k 

If you live 7 years after the gift you/they won't pay any inheritance tax on it all regardless

If the gifts and assets left are in total under the threshold for inheritance tax you none will be due (unlikely given below and obvious really that one!)

If you do die before the 7 years pass then the amount due is on a sliding scale.

Essentially it's used by people with assets they know will be a lot over the inheritance limit to avoid some tax and give money to usually their children. Ie they have enough to gift it to a person, who'd get it one day anyway and so why not now and avoid the tax. 

[Dnk]

13 hours ago, Scooter said:

If you live 7 years after the gift you/they won't pay any inheritance tax on it all regardless

If the gifts and assets left are in total under the threshold for inheritance tax you none will be due (unlikely given below and obvious really that one!)

If you do die before the 7 years pass then the amount due is on a sliding scale.

Essentially it's used by people with assets they know will be a lot over the inheritance limit to avoid some tax and give money to usually their children. Ie they have enough to gift it to a person, who'd get it one day anyway and so why not now and avoid the tax. 

Thanks very helpful mate 

[Dnk]

16 hours ago, rider said:

The government website explains things quite clearly so its worth a visit.

https://www.gov.uk/inheritance-tax/gifts

and

 

Perfect thank you 

[The Raven]

Without sounding stupid.

If one was to say need to gift money for a thing. IE a car or something material. Could you not just give them the car or item?

[Annabella]

2 hours ago, The Raven said:

Without sounding stupid.

If one was to say need to gift money for a thing. IE a car or something material. Could you not just give them the car or item?

Think that would count as a taxable gift, although you could put the car in their name DVLA wise but still be the legal owner.......

[rider]

A car would count as a taxable gift but whenever I have had to allocate a value for tax purposes, and it has always been accepted, I use we buy any car. For the Supra, the IH tax asset value is £220.

[Dnk]

Is there value when something doesn't count to being a gift ? 

 

 

[Dnk]

I've just been reading a pdf from a financial planning comp and one part states 

"As many small gifts of up to £250 as you like but no more than £250 per recipient"

What timescale would that be in ? 

[Style]

Seems like a bit of an odd statement to be honest. I reckon I could send 10 times that to a complete stranger in a single payment and no one would bat an eye. Or do you self employed lot get scrutineered to the n'th degree? I'm probably completely niave to this sort of thing 

[Dnk]

20 hours ago, Style said:

Seems like a bit of an odd statement to be honest. I reckon I could send 10 times that to a complete stranger in a single payment and no one would bat an eye. Or do you self employed lot get scrutineered to the n'th degree? I'm probably completely niave to this sort of thing 

Almost seems like pot luck if you get investigated from what a tax guy was telling me.