Grandmother's Cash Gifts


T

TheScullster

Hi all

My mother wants to give her grandchildren cash gifts.
She is currently in hospital and may need long term care shortly.

However she and my late father have set a precedent in giving ~£1k per child
each year to help with university costs etc.

According to HMRC site
http://www.direct.gov.uk/en/moneyta...oney/planningyourpersonalfinances/dg_10013916
there is no limit to the cash gifts she can bestow.
However, there is a "may have to pay inheritance tax" clause which I can't
find a clear explanation for.

So the questions:

Can anyone enlighten me on the inheritance tax bit - who pays it and in what
case? Her total assets are <£325k.

I think I can reasonably argue the precedent case, if mum is means tested
and these outgoings are noticed.
The payments are made from savings rather than income.
She has mentioned making additional or increased payments and I reckon this
could be justified given the increase in student fees and accommodation
costs - what does the group think to all this please?

Thanks


Phil
 
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D

David Woolley

TheScullster said:
Can anyone enlighten me on the inheritance tax bit - who pays it and inwhat
case? Her total assets are <£325k.
The estate, or if that runs out of money, the recipients. It is payable
if the excess over the exempt gifts paid over the last seven years, plus
the remaining value of the estate, exceeds the inheritance tax
threshold. I think it is at a discount to the full 40% rate.

As the payment from income option doesn't seem to apply to you, and
assuming payments are only being made to p;humans (not to companies or
trusts), she is allowed £250 per person, provided that that is the only
money she is paying to those persons, and a further £3k a year, in
total, spread around the remaining persons. Payments of £1k would have
to come from the £3k pool.

If you have correctly valued the estate, and there is no income
accumulating, it looks unlikely that she would trigger inheritance tax,
unless interest rates go up much more than the tax threshold.

She may also be able to use unused allowances from her husband.
I think I can reasonably argue the precedent case, if mum is means tested
and these outgoings are noticed.
I'm a bit concerned that you are suggesting failing to disclose relevant
information.
The payments are made from savings rather than income.
She has mentioned making additional or increased payments and I reckon this
could be justified given the increase in student fees and accommodation
costs - what does the group think to all this please?
As I understand, she should be able to show a cash flow projection that
avoids her eventually having to call on state funds. That might involve
purchasing an immediate needs annuity, at some stage. As I understand
it, the problem will occur at the point at which she does call on state
funds, at which time she will have to convince people that she could not
reasonably have foreseen that.

I don't believe that the payments to the grandchildren would be
considered necessary expenses.
 
T

TheScullster

TheScullster said:
Can anyone enlighten me on the inheritance tax bit - who pays it and in
what case? Her total assets are <£325k.
The estate, or if that runs out of money, the recipients. It is payable
if the excess over the exempt gifts paid over the last seven years, plus
the remaining value of the estate, exceeds the inheritance tax
threshold. I think it is at a discount to the full 40% rate.

As the payment from income option doesn't seem to apply to you, and
assuming payments are only being made to p;humans (not to companies or
trusts), she is allowed £250 per person, provided that that is the only
money she is paying to those persons, and a further £3k a year, in
total, spread around the remaining persons. Payments of £1k would have
to come from the £3k pool.

If you have correctly valued the estate, and there is no income
accumulating, it looks unlikely that she would trigger inheritance tax,
unless interest rates go up much more than the tax threshold.

She may also be able to use unused allowances from her husband.
I think I can reasonably argue the precedent case, if mum is means tested
and these outgoings are noticed.
I'm a bit concerned that you are suggesting failing to disclose relevant
information.
The payments are made from savings rather than income.
She has mentioned making additional or increased payments and I reckon
this could be justified given the increase in student fees and
accommodation costs - what does the group think to all this please?
As I understand, she should be able to show a cash flow projection that
avoids her eventually having to call on state funds. That might involve
purchasing an immediate needs annuity, at some stage. As I understand
it, the problem will occur at the point at which she does call on state
funds, at which time she will have to convince people that she could not
reasonably have foreseen that.

I don't believe that the payments to the grandchildren would be
considered necessary expenses.


Hi David

Thanks for explanation - the mists are clearing somewhat.
Can I clarifiy your statement "I'm a bit concerned that you are suggesting
failing to disclose relevant
information."
My mother has yet to be assessed (financially or otherwise) for on-going
care requirement.
Do I assume from your statement that the means testing would include
declaration of gifts made on a regular basis previously and in future?

Thanks

Phil
 
D

David Woolley

TheScullster said:
Do I assume from your statement that the means testing would include
declaration of gifts made on a regular basis previously and in future?
Although we never actually reached this stage, my understanding is that
any decision to spend more than necessary for her own well-being which
could reasonably lead to her having recourse to state funds is relevant.

Any future gifts would definitely have to be viewed with regard to the
possibility that there was an expectation that they would make her
eligible for state funding.

I imagine there would be some discretion with regard to past gifts, but
they would still be looking to see whether she made reasonable
provisions to avoid state funding.

I imagine the problem will actually occur when her capital crosses the
means tests limit, but they will be looking for actions before then that
would have accelerated the need for funding.

As you said that her estate was <£325k, rather than <<£325k, unless the
nature of her illness is such that her life expectancy is still quite
high, she would need to consider buying an annuity to cover the care
costs, either on a immediate basis, or, if her probable life expectancy
was fairly low, but she could still live a long time, on a deferred
basis (i.e. the annuity is paid for now, but only starts paying out
after two or three years). That could avoid recourse to state funds and
leave her with some capital, but she is gambling on living for longer
than the insurance company expects.
 
T

TheScullster

TheScullster said:
Do I assume from your statement that the means testing would include
declaration of gifts made on a regular basis previously and in future?
Although we never actually reached this stage, my understanding is that
any decision to spend more than necessary for her own well-being which
could reasonably lead to her having recourse to state funds is relevant.

Any future gifts would definitely have to be viewed with regard to the
possibility that there was an expectation that they would make her
eligible for state funding.

I imagine there would be some discretion with regard to past gifts, but
they would still be looking to see whether she made reasonable
provisions to avoid state funding.

I imagine the problem will actually occur when her capital crosses the
means tests limit, but they will be looking for actions before then that
would have accelerated the need for funding.

As you said that her estate was <£325k, rather than <<£325k, unless the
nature of her illness is such that her life expectancy is still quite
high, she would need to consider buying an annuity to cover the care
costs, either on a immediate basis, or, if her probable life expectancy
was fairly low, but she could still live a long time, on a deferred
basis (i.e. the annuity is paid for now, but only starts paying out
after two or three years). That could avoid recourse to state funds and
leave her with some capital, but she is gambling on living for longer
than the insurance company expects.


David

Many thanks for your expansive response(s).
I feel that it would be prudent to get paid advice on this should expensive
paid care prove necessary.

Phil
 
D

David Woolley

TheScullster said:
Many thanks for your expansive response(s).
I feel that it would be prudent to get paid advice on this should expensive
paid care prove necessary.
I think your first priority should be to find a good care (with/without
nursing) home. Ideally she should have researched the local ones when
she was in good health, but I doubt that many people do. You may find
that she knows people who have moved into homes. You will probably find
that you don't get long to choose once the hospital decides they want to
discharge her.

You should find that the administrators of the home will be able to give
you advice on the financial side.

I should add that in some circumstances, where a very high level of
nursing is required, the NHS will fund the care home completely. It was
suggested to us that you should get an evaluation for this, even if she
doesn't qualify at the moment, as it will set a baseline for any
subsequent review. What we have been talking about, up to now, is
council funding.
 
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A

Allan

Hi all

My mother wants to give her grandchildren cash gifts.
She is currently in hospital and may need long term care shortly.

However she and my late father have set a precedent in giving ~£1k per child
each year to help with university costs etc.
IANAA/IANAL

if she survives 7 years from the date of gift(s), the gifts fall out of
IHT (PETs); after 4 years, it's tapered.
if the gifts are regular, there's an annual exemption (£3k?)
if the gifts are made out of income and there is no change to her
standard of living, then the gifts fall outside IHT.

Suggest you get some careful advice.


The means-testing for receiving care payments is another whole can of
worms: if the authorities suspect her of trying to pass on her assets to
reduce her wealth below a certain amount to qualify for care, then
they'll be chasing those transfers.
 
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D

David Woolley

Allan said:
if she survives 7 years from the date of gift(s), the gifts fall out of
IHT (PETs); after 4 years, it's tapered.
If she is likely to need long term care, she is likely not to survive 7
years. Conversely, if her illness is such that she is likely to survive
more than 7 years, it is probably essential that she acts very prudently
with her savings, so that, when she runs out of capital, the council
cannot claim that she deliberately made herself eligible to have care
costs covered.
if the gifts are regular, there's an annual exemption (£3k?)
The £3k exemption is not dependent on the gifts being regular. However,
the OP said that she wanted to increase from £1k per grandchild and I
suspect there may be three or more grand children, in which case she is
probably over the limit.

(There is also an allowance of £250 per person, but this cannot be
combined with the £3k for the same person).

However, from the sound of things, she doesn't have enough capital for
any of this to matter.
if the gifts are made out of income and there is no change to her
standard of living, then the gifts fall outside IHT.
Gifts out of income are the things that have to be regular, but it has
been established that she is funding the gifts from capital, so this
doesn't apply.
Suggest you get some careful advice.
On the information provided, she is not going to pay inheritance tax. I
assume that the value of any house she may own has been included in the
< £325k figure.
 

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