Family Money, not Tax

Keeping it in the Family

It is said that there are three ways to get money, inherit it, steal it, or win it.

We will disregard the first two options, and look at the last for a moment. A big win could come from the lottery or the Premium bonds, both of which are tax-free at the time you receive the money. Individuals hold premium bonds and so any win becomes the bondholder money, but with the lottery there is a way of ensuring that your immediate family benefit from you good fortune without any further tax liability.

What would happen if your numbers come up and you have a very healthy £5 million to your name, you would of course want to give your children a share of your good luck. You can of course give away any amount you want with out them having to pay inheritance tax, provided you live for seven years. We will come back to this later. If however you have already made you mind up as to what you would do with the money, you could set up a syndicate with your family members making contributions, each paying for one or two lines in each draw. If the syndicate then has a large win the proceeds can be divided up amongst the members, each taking a share in proportion to the number of line they pay for each week. This could leave you and your spouse with lets say £2 million with each of your three children having £1 million each, and NO tax liability.

Inheritance tax

Inheritance tax has to be paid on the death of anyone with assets of over £275,000 at a rate of 40%, lets look at an example of how this works

Your assets at your death could be:

A healthy wind fall for the Chancellor of the Exchequer. If however you are married at the time of your death, your spouse can inherit all of your assets without paying tax. But on the death of your spouse your children will have to pay tax on anything over the Nil rate band of £275,000 as shown in the example above.

However you can make use of both of your tax allowances, if you share your assets between you, both of you can use the inheritance tax threshold, with a huge saving in tax.

If in your wills you set up a nil rate band discretionary trust, any amount up to the nil rate band, £275,000, can be put in. The surviving spouse can still have access to this money, or it can be passed to your children, and on the second death the nil rate band can be used again. It is important that you seek advise from your solicitor and set the trust up in your will.

Life Insurance

You can of course take out a Life Insurance policy but this must be in a trust to your children, which is quite simple and can be done before or after you take out a policy. Again it is important to seek professional advice either from your solicitor or the policy provider who can supply you with the forms.

There will be no inheritance tax to pay as the money belongs to the beneficiary and not yourself. This also has the benefit that they wont have to wait for probate to get the money, as it does not form part of the estate.

Giving Money (not tax!) Away

You can give away as much as you like, don't leave yourself without enough to live on, without your family or friends having to pay inheritance tax as long as you live for seven years. Even if you don't the amount of tax is reduced after the first three years on large gifts.

Parents and grandparents can give away £3000 each year, and this amount is free from inheritance tax even if you die within seven years. As this applies to a husband and wife, a couple can give away, between them, £6000 a year to their children or grand children without any tax liability.

You can also give away as many small gifts as you like as long as the value given to any one individual does not exceed £250.

Grandparent's can also pay school fees as long as it comes from surplus income and is a regular gift. You could also start a savings plan for them on the above basis.

You can also give your children up to £5000 as a wedding gift without the taxman being interested. If it is one of your grandchildren the value is £2500, and if it is a friend the limit is £1000.

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