Unearned income (gift)

No, but the interest earned if you invest it is.

IHT could be an issue in some circumstances if they die within 7 years.

No - but.....

There could be an Inheritance Tax liability if your parents were to die within 7 years, but that would be the liability of their estate, rather than you.

And if you're under 16, then if the 6k earns interest > 100 per year, the whole of that interest is taxable as your parents' income.

Not for the donee(s), unless they are minor children - but might have IHT implications for the parents.

How on earth would what I receive and spend from them and what I earn/invest myself be differentiated, and by whom?

Precisely !! Logic, pragmatism and common-sense are unlikely to make successful bed-fellows with tax rules !!

The UK tax office now run an honesty system.

The penalty for lying (and being caught) can be jail time.

tim

I think his point was that the interest you earn off your parents gift would be taxed exactly the same as interest you earn off any other money you've saved - ie it's not differentiated.

There is a daft rule about interest over 100 that comes from a parent's gift being taxed as the *parent's* not the child (in which case you *would* need to differentiate), but I think this only applies if you're a kid. It's designed to prevent parents using their kid's tax allowance to save tax free.

Unearned income is taxable.

But even though a gift may be undeserved and hence unearned, it isn't unearned income. It isn't income, and therefore not subject to income tax.

Chances are there will be no IHT implications either, as it's likely this will fall under the "small gift" rule if this is the only gift the parents are making in a tax year (i.e. they aren't also giving money to another child).

So if it all went into ISA's - no tax even on the interest?

In message , Martin writes

Not necessarily. If the estate is broke then HMR&C can chase the recipient of the PET.

>

If the "estate is broke", how does it have an IHT liability?

In message , Martin writes

E.g. If an individual had assets of £500,000 but gave it all away just before death those gifts would be Potentially Exempt Transfers (PETs). On death within 7 years of making the gifts then, before any taper relief, there would be a liability to IHT of £90,000. The estate would be 'broke' in so far as it had no dosh as at the time of death and nothing to leave to the beneficiaries of the estate. There would still be an IHT liability though as HMR&C would add back the PETs and the liability for the ensuing IHT would fall on the beneficiaries of the PETs.

...many thanks for all the replies

Is it not the case that only recipients of "late" PETs (i.e. above the threshold) can be chased? E.g. if the deceased had given away 275k two years ago to X and a further 275k one year ago to Y, and then there's nothing left, there would obviously be a liability of 110k (first 275k exempt, second 275k at 40%), but Y would be chased for all of it and X would be all smiles.

Yes, I think you are right but I have a nagging doubt in my mind. I will research it. Logically you would be right, - that is how lifetime liabilities to IHT are dealt with when making settlements into Discretionary Trusts.

So why is this thing nagging at me? I will report back.

If they had made it 3000 from one parent and 3000 from the other it would be an exempt gift in terms of any potential IHT liability for your parents. If it was 6000 from one parent then it would become a potentially exempt transfer requiring them to survive 7 years otherwise it is drawn into their estate which may, if their assets are high enough, incur IHT liability.

If you stick under the mattress it doesnt earn any income therefore it will not incur tax, however if you invest it in a savings account it incurs a 20% liability unless your total income is less than the single persons tax allowance of 4895 in which case you should elect for IR form R85 (interest paid free of tax)

Not necessarily. Each parent only has a £3k allowance, and if they wanted to give £6k to *each* of more than one child, ...

Not necessarily. If the parent had not used the previous year's £3k allowance, this can be carried forward to the current year. So each parent can gave £6k in one go every two years.

That part is true.

Even without this form, any tax deducted at source can be reclaimed via your tax return. That's one of the few times where "tax return" can be taken literally. Your *deduction at source* may be 20%, but your

*liability* can be 0%, 10%, 20%, or 40%, depending on whether your income in excess of the personal allowance is below zero, below £2090, below £32400, or above £32400.

In message , biggirlsblouse writes

.....Unless they didnt make use of last year's allowance.

Surely 6000 from my parents is 3000 from each. I don't see how anyone married can say this is mine and that is yours surely both own 50% of the total?

I have all my and my wifes savings in my name, but I don't imagine for a minute that I could run off with it all.