My parents are gifting me £140,000 to pay off my mortgage. Do they or I have to pay tax on this?
Neither of you will have to pay any tax right away on this gift – but there could be inheritance tax (IHT) implications further down the line.
I am assuming the gift is made jointly, which will then count as £70,000 from each of your parents. The first £3,000 from each of them could be offset by their annual gift allowance of £3,000, provided this allowance has not been used elsewhere. They can also bring forward any unused allowance from the previous tax year.
So if they have not used any allowance at all, the first £6,000 from each of them will be free of IHT. The remaining £64,000 each would be counted as part of their estate should they die within seven years.
If their assets go to each other on first death, there would not be any IHT to pay at that stage. However, the £64,000 would reduce the available nil-rate band of £325,000 that is normally passed on to the surviving spouse.
Should they both survive seven years from the date of the gift, it would be out of their estate altogether and there would be no IHT implications.