Scooby Soon!

ok,

Before any one says it I will do it for them "I have an apointment with my accountant next wednesday so I will check all info with him"

My father wants to gift 45k to me from the sale of his house as he is down sizing to a smaller home, will I have to pay tax on this money?

Any help appreciated as I dont know much about the tax system!

Dunk

iTrader: (1)

He can give anything he wants, the issues are :

1) If tax is payable on the sale of his home. (If it's his main residence then not)
2) If he dies within 7 years then some tax will be payable on the gift.

D

Scooby Soon!

Dunk,

The house is his main residence and is the only house he owns, its only worth about 200k so its below the IHT threshold (i know that much). But will I have to pay capital gains tax or something similar? or is CGT for selling shares etc?

Dunk

iTrader: (1)

If he owns 100% of the house, sells it, then gives you a slice. You don't have to pay a penny of tax & neither will he. (as long as it's his main residence).
The complication is if he died within 7 years of making the gift to you & his estate was liable to IHT. (Can't remember if the gift forms part of the estate valuation for IHT purposes - suspect it does.) (CGT doesn't come into it unless it's not his main residence)

D

hades

Gift does form part of the valuation w.r.t. liability for IHT if he dies within 7 years. IIRC, it is a bit pro-rata though - if he dies within 1 year, the whole value of the gift goes against value of his estate w.r.t. IHT. If he dies after 6 1/2 years, only 1/7th of the value (I think I have the fractions right, maybe not!) is liable. You can effectively take out a life insurance policy against him to just cover any IHT liabilities (i.e. if he doesn't die within 7 years, you get nothing back). Cost is obviously dependent on his age, health etc.

CGT is for anything you buy that could be termed as an investment - i.e. any property that you don't live in, shares, bonds etc.

Tiggs

or for the correct answer:

The gift is not taxed. The only issue is IHT if your dad dies.

If he dies after 7 years (2012+) then there is no tax to pay.

If he dies within 7 years the value of the gift (45k) will be offest against his Nil Rate Band for IHT at that time...........so if he dies in 5 years and the NRB is then 300k he will loose 45k of it on the gift. (assuming no other gifts)

This has no effect on you as the NRB has covered the gift.....however his remaining estate now only has a NRB of 300-45 = 255k so there may be more tax to pay on that as a result of the gift.....but thats tuff luck on the esate.

The tapering effect that people are speaking of will prob not be relevant as the gift is so small (again, assumes its the only gift).......if he gave you 500k and died in 5 years it would be different:

His NRB is 300k, gifts in previous 7 years = 500k.........so he blows the whole NRB and is still 200k short. The GIFT now has some tax that the executors will come after. The tax is only on the 200k not covered by the NRB and THAT ELEMENT tapers (assuming they find you!)

The rest of his estate has NO NRB left so pays IHT on everything.

In simple terms......if the gift (or total gifts) are small, forget taper.

T

hades

NRB is definitely better put than "value of his estate w.r.t. IHT", but I was trying to mean almost what you said, just in MUCH worse English!

One thing where I was potentially wrong. I think you're saying that if the total gifts are less than the NRB, taper is irrelevant, it's just the gifts eat up the NRB allowance(?). I'd thought that taper applied where gifts take the total estate over NRB, but I'm happy to stand corrected on that point.

Bluie

Tapring relief is only of use if the total gifts made in the previous 7 years exceed the NRB, most people will never benefit from this and indeed are ill informed as it is never clearly stated when they read the national paper money sections.

Tiggs

gifts are offset against NRB before the residual estate......so the gifts total value could be £250k........still within the NRB. Rest of the estate value not relevant......although in that example, even if the residual estate was only £50k it would still pay IHT as the remaining NRB is nearly wiped out.