All UK residents have an annual gift allowance of £3,000 which makes this transfer of money (or other taxable valuables) tax-free. Through this article, we will focus on the conditions under which a parent can gift £100,000 to their child while making sure that it remains free from the tax deduction. We will also discuss key areas related to inheritance tax and deprivation of assets to have a full picture of how claimants are affected by the valuables they inherit and their responsibilities towards tax payments.

Can I Gift 100k To My Son?

Yes, you can gift £100,000 to your son, any other family member or even to trust; however, there are conditions under which inheritance tax will be applicable. 

The annual amount of tax-free gift money in the UK is £3,000. This means if you gift this sum of money to your family members (usually children and grandchildren) there will be no inheritance tax due on it.  

In case of a monetary gift that sums to £100,000, out of this the amount of £3,000 will be considered as a tax-free gift allowance while the remaining £97,000 will be classified as a potentially exempt transfer. 

However, should the person who has gifted this amount dies within a period of 7 years after transferring the amount, it will be counted towards their estate to calculate the amount of inheritance tax. The beneficiaries will not be expected to return the amount as it will only be considered for assessment purposes.

If someone gifts away large sums of money as this and needs to be transferred into a care home facility soon after, this act of reducing assets may be considered by authorities as deprivation of assets:  a deliberate act to avoid having to pay care home fees. Should they be able to find a lack of coincidence, the amount will be considered as still being in possession of the claimant and they will be required to contribute towards their care home fees accordingly.

Gifts between partners or spouses are tax-free and will not be counted towards inheritance tax as long as they are permanent residents in the UK and are legally married or in a civil partnership. Additionally, donations made to charities, trusts and national organisations are also tax-free. 

What Counts As Gifts?

The following items are counted as gifts and will not be counted towards one’s estate as long as deprivation of assets cannot be proved:

  • properties including a house, land or buildings
  • household and personal goods; such as furniture, jewellery or antiques
  • money
  • stocks and shares 
  • unlisted shares (held for less than 2 years before the death of the gifting party) 

If someone chooses to sell a valuable asset at a reduced value, the difference in the selling price versus the market value of that asset will be considered as a gift. 

Inheritance tax due on gifts worth up to £325,000 is not taken from the beneficiary but accounted for in the deceased’s estate; unless the gifting party passes away within 7 years of transferring the gift.

What Is Inheritance Tax?

Inheritance Tax is a tax that is levied on the estate of someone who has passed away and left behind property, money and possessions that need to be “managed” in an appropriate manner so that (a) if there is a will made by the deceased, the instructions are followed or (b) in the case that there is no will of the deceased, the estate is appropriately handed over to the legal heirs.  

The standard rate of Inheritance Tax is 40 per cent on an estate valued at or more than £325,000.

However, there is no inheritance tax levied on an estate that is valued below £ 325,000; however, you may still be required to report the property to HMRC. Similarly, if valuables above the £325,000 threshold are left behind in the name of one’s partner or spouse, a charity or a community club, there will be no inheritance tax levied. 

If the same property is left behind for children, the threshold will increase to £500,000. 

How Can I Transfer Unused Nil Rate Band?

Form IHT436 is used to claim to transfer any unused nil rate band (RNRB) against the Inheritance Tax of the estate of someone who has passed away.

The IHT436 can only be used in conditions where:

  • The spouse or civil partner of the deceased died before them
  • Death of the spouse or civil partner took place before 6 April 2017
  • If the death of the spouse or civil partner took place on or after 6 April 2017 without having used all of the RNRB available to them

Additionally, you will also need to fill out the IHT435 form. RNRB can also be applied in cases where the deceased either downsized to a less valuable residence, sold or gave away a residence on or after 8 July 2015.

The law that applies in his case is that if someone dies and their estate is valued at more than the basic Inehrtience Tax, the estate can qualify for a nil rate tax band on Inheritance Tax due on it.

Unlike basic Inheritance Tax, the RNRB does not apply to gifts and lifetime transfers such as transfers to trusts.

What Counts As Deprivation Of Assets?

When someone deliberately reduces their assets to avoid having to pay fees and taxes, it is considered as “Deprivation of Assets”.

While most individuals consider that transfer of savings, selling of one’s property or gifting their home to a family member is all that counts as deprivation of assets, that is not all. Any of the following actions can be counted as deprivation of assets (unless there is evidence to prove otherwise):

  • To give away a large sum of money
  • To transfer the title deed of one’s property
  • To spend a large amount of money which is in contrast with the spender’s usual spending pattern
  • To lose money through gambling 
  • To use savings in order to purchase items excluded from a means-test such as a car or jewellery

What Is The 7 Year Rule Regarding Deprivation Of Assets?

The 7-year rule states that if someone has gifted their property or a part of it, no inheritance will be applicable to it after a lapse of 7 years.

Certain individuals choose to give their property to their children in order to avoid its inclusion in their financial assessment for care home fees contribution. However, depending on the usual spending patterns, financial considerations, health records and proof of intentions local council authorities can consider this as deprivation of assets.

Another option is to transfer your assets to a trust rather than an individual. In this case, there will be a group of individuals considered as a trust to whom the property’s ownership is entrusted with. 

What Is Not Considered As Deprivation Of Assets?

According to the Guidance manual on assessment of capital, if the claimant has sold or transferred assets with the intention to:

  • reduce or return the debt that they owe (either to an individual, bank or the state),
  • make credit cards payments,
  • pay for their mortgage,
  • make payments for day to day expenses,
  • improve their quality of life (for e.g by purchasing a new car or rebuilding a kitchen),
  • improve their quality of health through medical expenses, or
  • go on a holiday

it will not be considered as deprivation of assets.

Is Deprivation Of Assets A Criminal Offence?

Yes, deprivation of assets is considered a criminal offence simply due to the deliberate reduction of assets by claimants of benefits, especially those who are about to apply for care home residency.

However, in order to prove that a deliberate reduction of assets has taken place, there needs to be evidence supporting the below essential actions for deprivation of assets to be applicable:

  • The applicant knew at the time of the said reduction of assets that they will be in need of care home residency shortly
  • There appears to be no other motivation or intention for reduction of assets that may be proven with supportive evidence

Conclusion:

By reading this blog post we have learnt that when someone is gifting money or valuables exceeding the annual gift allowance, only the amount of £3,000 will be considered as a tax-free gift allowance while the remaining will be classified as a potentially exempt transfer. In case the person who has gifted this amount dies within a period of 7 years after transferring the amount, it will be counted towards their estate to calculate the amount of inheritance tax. However, one must make sure that their act of gifting is not seen as deliberate deprivation of assets as there may be dire consequences.

FAQs: Can I Gift 100k To My Son?

How much money can be legally given to a family member as a gift UK?

The annual amount of tax-free gift money in the UK is £3,000. This means if you gift this sum of money to your family members (usually children and grandchildren) there will be no inheritance tax due on it.  While you can gift money that is in excess of this amount, you must be careful that it does not count as deprivation of assets.

Can my parents give me 100k?

Yes, your parents can give you 1000k (or any other amount); however, should the person who has gifted this amount dies within a period of 7 years after transferring the amount, it will be counted towards their estate to calculate the amount of inheritance tax. In case of a monetary gift that sums to £100,000, out of this the amount of £3,000 will be considered as a tax-free gift allowance while the remaining £97,000 will be classified as a potentially exempt transfer. 

How much money can each parent gift a child in 2021?

The annual amount of tax-free gift money in the UK is £3,000. This means if you gift this sum of money to your family members (usually children and grandchildren) there will be no inheritance tax due on it. While you can choose to gift any amount in excess of the gift allowance, your intention should not be a reduction of assets to claim benefits or avoidance of inheritance tax.

How does HMRC find out about gifts?

HMRC does not find out about gifts on their own. They expect the Executor of the will of the deceased person to share these facts for them before probate can be granted. If they find out that facts have been misrepresented, the claimants will be faced with a fine and payment of the due amount of inheritience tax. 

How do I avoid gift tax?

In order to avoid gift tax, you can either use your annual gift allowance of £3,000 or transfer gifts to a spouse or partner or donate the amount to charity.

References:

Gifting money in the UK explained ✔️ – Taxes

How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts – GOV.UK

How Much Money Can I Gift Someone

Claim transferable residence nil rate band (IHT436) – GOV.UK

Deprivation of assets | Social care means tests

Deliberate Deprivation of Assets

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