Giving a friend a lump sum of money as a gift before she dies

[skyblueyonde]

A friend of mine has been looking after her neighbour since her husband died 12 years ago she is now 84 years old and not in good health but still has her full faculties, she has neices and nephews who rarely visits her but, has decided to leave them 2 thousand pound each but to give them the money now, whilst she is still alive. She also wants my friend to have 10 thousand pound now to show appreciation for everything she has done for her.

My friend has been given the cheque but afraid to bank it and is worried that the tax man or her family will come after her and want the money back.

She is also concerned if she will herself will have to pay inheritance tax on that money if and when her neighbours does pass away. Do you think she should bank the cheque now and not worry about it. I think she deserves it as she has helped her neighbour out so much and with a good kind heart my friend was shocked but pleasantly surprised that her neigbour wanted to give her this money now whilst she was alive.

ps i don't think her neigbour is in good health and could live a good few months or maybe a year or so.
Thanks to anyone for advice on this matter.

[Skyline D]

Well she's certainly gaining nothing by not banking the cheque so she should do so as soon as possible. If her neightbour was to die before the cheque was banked for instance it likely wouldn't be cleared.

Inheritance Tax is only relevant if the neighbour has an estate big enough to fall into it in total. Does she? If she doesn't you can forget it. If she does, then yes, potentially there would be Inheritance Tax to pay on it though it's tapered over time so the longer she lives after making the gift, the less the tax is. If she lives seven years there's none.

There's also the consideration that if the neighbour eventually requires state care and can't afford to pay for it herself then the local authority may challenge the disposal of money as gifts earlier.

I don't know enough about the area though. Someone better placed could give better advice. Certainly I would say though, if she's prepared to accept the money at all then bank it as soon as possible. If not then tear it up. Holding onto the cheque is achieving nothing.

[daffy654]

Tell her to bank the cheque but put the cash into an account with high interest and just leave it there.If she is then required at any time to repay it the cash will be available and it will have accrued interest which she can keep.

[skyblueyonde]

Thanks for the advice i will pass it on, as i thought i didn't think she would have to much to worry about and as you both suggested bank the cheque as soon as and just sit on it. I believe the neighbours estate is well below the government threshold so again i think she will be ok. thanks again guys :-)

[Hymie]

There are tax implications for all involved.
There is a personal �3,000 annual tax free gift allowance.
By giving �18,000+ in one year, the tax man could come calling (if he finds out).
See my post here, which is closely related � it may be worth employing the services of a solicitor/tax advisor who will be able to advise on liabilities and options to reduce those tax liabilities.

http://www.theanswerbank.co.uk/Business-and-Fi nance/Question701636.html

At the end of the day �18,000 is small beer to the tax man; especially while our banking system is currently a black hole into which hundreds of billions of pounds is being poured.

[dzug]

There is a personal �3,000 annual tax free gift allowance

No there isn't - the �3000 limit relates to the potential for Inheritance Tax., it isn't a limit on gifts as such.

You can give away as much as you like - there is no gift tax in the UK.

There is the potential for inheritance tax (but only if the estate is large enough - which it isn't in this case)

[Skyline D]

Yes, as dzug has already said, Hymie's answer is a red herring. Ignore it. It doesn't apply in this case if you are sure the estate is less than inheritance tax values (including the property). Even if the estate was larger it will still only be a potentially exempt transfer as I explained in the first answer. There is NO LIMIT for gifts.

However, as I already warned, and as I think Hymie was probably meaning, there may be ramifications if the neighbour later requires state care and has given away her assets. The local council may be able to reclaim the money. I wouldn't know.

[skyblueyonde]

Thank you for all your replies. The neighbour in question is giving away a total of �24,000 in one tax year, �10.000 to my friend and the rest divided into 7X�2,000 pound cheques to her neices, nephews and grandchildren. She still has plenty of savings put by and collateral left in the property but still well below the IH threshhold. I understand what your saying regarding if she needs extra care if health worsens my friend said she will bank the cheque but not touch it (though i would think she would be able to if she wanted to dip into it say upto the �3,000 gift allowed. She is contacting a solicitor to come to her neighbours to remake her will but her neighbour so generously wanted to give this money away now whilst she can.

[Hymie]

OK (sorry) � Ignore my nonsense, take the money & run.

If the old lady dies within 7 years, the tax man may be able to claim inheritance tax is due on the money given, but that is for her estate to pay, not the recipient of the gift (money).

[skyblueyonde]

Thanks Hymie - much appreciate everyones comments on this matter, Why is life so complex when giving away our own money if we so choose!!! :-)