Will my daughter pay tax if she gifts me £250,000?

29 October 2019

Q

My daughter is receiving about £300,000 from her grandfather’s will. She is gifting me £250,000 to buy my social housing property. Will there be any tax implications?

From
LR/Cambridge

A

As the gift you are receiving is more than the exempt tax-free amount allowed for gifts, most of it will be treated as a Potentially Exempt Transfer (PET) for inheritance tax (IHT) purposes.

For a PET to be free of IHT, your daughter would need to survive for seven years after making the gift. 

If she dies within seven years of making a PET and the total of PETs she has made is less than £325,000, then the amount she has gifted will simply reduce her nil-rate band on her death. The nil-rate band is the standard amount that an estate can be worth before any IHT becomes payable.

This means that you won’t be liable to pay IHT on the gift, but it also means that she won’t make any IHT savings by making the gift.

It is only if the total value of PETs and other chargeable transfers that she has made within seven years ending on the date of the PET is more than £325,000 that you could face a potential IHT bill if your daughter dies within this period.

However, your tax liability would reduce on a sliding scale if her death occurs between three and seven years after making the gift.

An alternative approach is a deed of variation. This is where the will of the person who died, in this case your daughter’s grandfather, is effectively changed so that other people can benefit.

In your case, you would change the will so that you received the £250,000 straight from the deceased’s estate.

This must be done within two years of the death and any beneficiaries who are left worse off by the changes must agree to them, which means your daughter would have to agree.

But remember that if you receive means-tested state benefits, the money your daughter gives you could be taken into account, affecting the amount you will receive.

This can be complicated, so seek independent financial and legal advice first.

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