IHT and Gifts

[terminal7]

Some 7 years ago I gave my son a significant amount of money in order that he could get on the housing ladder in London. This gift was accompanied by a letter stating that the money was indeed a gift. He is intending to move next year into a larger abode and the bank of mum and dad will no doubt be called upon again. Does one actually need - for IHT purposes - something in writing to state that the money is a gift? Obviously he is hoping that I live another 7 years!

T7

[Lootman]

Some 7 years ago I gave my son a significant amount of money in order that he could get on the housing ladder in London. This gift was accompanied by a letter stating that the money was indeed a gift. He is intending to move next year into a larger abode and the bank of mum and dad will no doubt be called upon again. Does one actually need - for IHT purposes - something in writing to state that the money is a gift? Obviously he is hoping that I live another 7 years!

I've done the same thing and the letter I wrote stating that the transfer of funds was a gift was required by the mortgage lender, who wanted to be sure that the down payment for the house was not some type of loan.

There is no requirement to officially document a gift for tax purposes. Gifts don't normally need to be reported to HMRC at all in the normal course of things. Nor is any letter required.

However you should have a note somewhere that records what gifts are made, which would be available to the Executor of your Will in the event that you die within 7 years and it needs to be reported. HMRC would be delighted if the Executor reports such a gift as it means they get more IHT, and so are unlikely to challenge it or ask for proof.

After 7 years you can forget about it.

[fca2019]

Yes as lootman says no need for anything in writing. Best to keep a log of gifts given as easier to do as you go along, rather than have to reconstruct down the line. Think good practice to keep a spreadsheet of investments and a log of gifts made. Live for 7 years then happy days (under current legislation).

[PinkDalek]

[This gift was accompanied by a letter stating that the money was indeed a gift. ...

Yes as lootman says no need for anything in writing. ...

There may be no need but there are reasons why something in writing may be a good idea.

We were advised by our then solicitors many years ago to write a letter to the donee stating that the sum being gifted is an absolute gift. With nothing to say why nor wherefore. Merely an absolute gift. The donee to countersign confirming safe receipt. A copy or the original documentation to go to the solicitor, to be placed next to the Will, or to be held in safe-keeping for the donor's executors.

Such a letter provides a couple of benefits:

1. It confirms the date of the gift.

2. It is beneficial for the donee to know that the gift is absolute. No ifs, no buts and no backtracking by the donor to say it was a loan all along. The latter does happen.

[Chrysalis]

It is beneficial for the donee to know that the gift is absolute. No ifs, no buts and no backtracking by the donor to say it was a loan all along. The latter does happen.

Indeed, there was an article in the FT personal finance column this week with a similar scenario.

[PinkDalek]

Indeed, there was an article in the FT personal finance column this week with a similar scenario.

If you can find it online, kindly provide a link and give the article's title.

Edit: This might be it Can I force my stepson to repay money I lent him to buy his flat? using Google to find the full article in the cache. This is a reverse situation but may be worth reading generally.

[Chrysalis]

Yes, that’s it. I didn’t link as it is behind a paywall. Not clear from the story what the understanding was when the arrangement was first agreed to - only that in the donor’s mind he now thinks it was a loan and wants it back, in the light of his divorce from the recipients mother.

[PinkDalek]

Yes but using the heading you can find the entire article (despite the paywall).

What I meant by reverse is in the article there was nothing to say it wasn’t a loan but we never find out if there was paperwork or anything else to confirm. As one of the professionals (a solicitor) said over there:

... the central question is whether you can show that the money was advanced as a loan — as opposed to a gift — and what contractual arrangement was in place between you and your stepson at the outset.