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bigduckontax, Accountant
Category: Tax
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If my father wanted to write me a cheque for £20,000, can he

do it, and would there... Show More
do it, and would there be a tax liability on me or him? Does he have to stick to the £3000 yearly tax free limit?
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Hello, I'm Keith and happy to help you with your question.
No problem at all, however it does create a Potentially Exempt Transfer (PET) for Inheritance Tax (IT). PETs run off in a taper over 7 years, If he dies before the 7 years are up the PET is added back to his estate and is the first tranche to be subject to IT if the estate is over 325K, any surplus being taxed at a straight 40%. If there are insufficient funds to meet the PET then the liability cascades down to the beneficiary for immediate payment. The solution is a decreasing term life insurance to protect the PET.
Otherwise there are no tax implications for either of you in the gift. I see you grasped the 3K annual allowance. If you marry he can give you a further 5K gift outside the IT envelope.
I do hope I have been of assistance.
Customer reply replied 4 years ago.

Hi Keith

Thanks for your helpful reply. Could I just clarify that if the PET is taxed on the amount over the IT threshold, would it be the amount over 325K, or whatever the IT threshold is at the time (say if that year's IT threshold had been increased to 340K, would it be on the amount over 340K, for example?). And also, would we have to inform HMRC of the money transfer, or would it be picked up when the estate is valued?



The PET is added back, but if the estate is under 325K after the add back there is no exposure to IT. If it's over then the PET is the first to suffer tax by the amount it exceeds the 325K. So if this rises in future years then, as you suggest, it might be 340K.
Your father does not need to report the gift to HMRC and nor do you. He should make a note of it however to forestall any future queries and to keep a track of the PET for his executors.
Customer reply replied 4 years ago.

Hi Keith

Thanks again for your helpful reply. I was just thinking, would it be a good idea to use the yearly tax limit for 2012-13, and 2013-14 in a cheque for £6000, and then use the tax free limit for 2014-15 as a cheque for £3000, and then a further cheque for £11,000?



p.s. I've left good feedback for you, as your replies have been helpful to me.

The yearly gift level outside the IT envelope is 3K pa unless you marry in which case he may give you 5K. Go over that and a PET is created.
Thank you for your support.
Customer reply replied 1 year ago.
Hi, can I ask a follow up question on this? Is there a link as I would expect that I need to pay first. My father has since sadly passed away and my sister and I have been named as joint executors in his Will.

Certainly, Graham

Customer reply replied 1 year ago.
Hi, thanks for replying. What I wanted to know is would the gift need to be added to the value of his estate? My reason for asking is that he has made my sister and I joint executors, his share of the house passes to Mam and my sister and I share equally his other assets between us. This was the arrangement my parents had between them. My worry is that he had made this gift to me which had been cashed in from Premium Bonds which were not transferable and asked me not to mention it to my Mam or sister. He made it to me as he felt I did quite a bit to help him with keeping on top of his garden and other household tasks over the last few years. The money itself is not the issue as I would happily share it. Neither my sister or myself are desperately needing the money (I would class myself as financially comfortable, not wealthy, she would, I assume, be more so than I). My worry is more about how she would feel emotionally if she found out about the gift as she may feel that he favoured me. If any tax was due would I be able to pay it separately? I don't think IT would be payable as the bank accounts I know of add up to approximately £160,000 - £170,000, and if his share of the house had to be added this would be maybe £70,000. Other assets would be small in financial value. Sorry for the long winded explanation, hope you can advise, thanks.

The gift is only added back at the appropriate taper level if a PET has been crested and the death takes place within 7 years of the gift. If your father's estate on decease is under 325K then there is no Inheritance Tax anyway. I cannot advise you on your sister's feelings, I am not Marjorie Proops! I do hope that helps for what it is worth.

For the moment I would advise you to emulate Brer Fox, 'For he lay low and say nuffin!'

Customer reply replied 1 year ago.
Thanks for the reply, it feels a bit of a tricky one at the moment.

Yes, but time will erode the problem!

Customer reply replied 1 year ago.
Thanks. Hope you are right.

Delighted to have been of assistance.