Q. My brother and I am concerned about the Inheritance Tax situation regarding our mother. Her estate will be well in excess of £1.2 million, and although I am aware that she can now use our deceased fathers nil rate band allowance which helps, there will still be a tax bill of over £200k.
She is now in her 80s, and in good health. We have broached the subject, and she is keen to ‘stop the taxman taking her money’.
She has a very good pension which she does not spend, and around £400,000 in cash and various other investments. I have heard about a rule that means she can gift monies to us/grandchildren from the spare income she has.
Is this true?
A. Yes it is true, and those with income in excess of their needs should consider this option.
Regular gifts from after-tax income, such as a monthly payment to a family member, are exempt as long as the giver still has sufficient income to maintain their standard of living.
These gifts need to be habitual, and you should keep a record of them compared to your mother’s expenditure to prove that she does not need this income. When making the calculation between what she needs and her post tax income, you can also build in the interest from any cash deposits.
These gifts also do not form what is known as a Potentially Exempt Transfer (PET). This is a rule whereby if your mother died within 7 years of making a gift, there would be some tax to pay. So she could make lump sum gifts in addition to these smaller gifts.
Taken together, you should be able to adopt a strategy whereby at the very least the problem is not getting worse, where her wealth is constantly rising as she saves her unused income.
You could also ask her to spend more!
