Does Gift Tax Apply In The Following Situation?

[Joeyox]

My father recently passed away unexpectedly and had not left a will. He was still married to his wife (my mother) however they had separated several years ago. This means that all money and possessions including the house will go to her. It has however been agreed that she will give me 50% of everything (including the house which is worth around £160k.)

My question is with regards to selling the property and tax. As the house is now only under my mothers name, when it gets sold she will take all the money. However she intends to give me 50%. Will this get taxed if she gives me half of the money or is there a better way to avoid something being taxed when it is purely inherited?

[woofgang]

As I understand it, in the UK, there is no such thing as gift tax.....your mother will have to survive for 7 years after making you the gift for you not to have to pay inheritance tax on it.

[Buenchico]

As Woofgang says, there is no such thing as 'Gift Tax'.

When your mother dies her estate will be subject to Inheritance Tax (IHT) if its total value exceeds £325,000. (That's the current threshold although, of course, it may well rise in the future).

If her death occurs within 3 years of her gifting you half of your father's estate, then the whole of that gift will be counted as part of her estate when calculating its value for IHT.

If she dies after that time, but still within 7 years of making the gift, then the amount of the gift that is included within the valuation of her estate is reduced on a sliding scale.

If she dies more than 7 years after making the gift then no part of that gift will be included within the calculation.

However if the total value of your mother's estate, at the time of her death, (including the gift to you or part of it, if appropriate) doesn't exceed £325,000 [or whatever the IHT threshold is at that time] then no IHT will be payable anyway.

[ubasses]

One change to Buenchico's post, as your parents were still married your mother will be able to use any of your father's unused IHT allowance potentially doubling her's to £650,000.

[Buenchico]

Thanks, Ubasses.

[Peter Pedant]

I am not sure there is a tax charge on the facts given no matter how you do it.

You say that under the intestacy rules your ma will inherit everything and that means that the total of the estate is less than £250k. If it is more, x say, then you should get half of ( x - 250k )

and if it is £250k or thereabouts it is less than £325k - and .... there is no tax to pay.

She can then gift you half 80k plus whatever and there is no tax charge on transfer and when she dies since the transfer is less than 325k on her own account there is on the figure given STILL no tax to pay - no matter what year she does it.

anyway - sorry for your loss
this is a bad time for you

[Joeyox]

Many thanks for all your help, that has resolved my question. Appreciate all your answers :)