Don’t let gift present problems
Being financially comfortable in retirement is wonderful but there are issues to be wary of with cash giveaways..
QI HAVE been retired for nine years and have one son who is married, as well as four grandchildren.
I would like to give my son £10,000 to help reduce his mortgage as interest rates are so poor and I am getting nothing in return. Is there a limit to how much you can give someone? It will be a gift and not a loan. I will still be left with more than enough to live off. My mortgage was paid off 15 years ago and I have no debt.
AIT’S great to hear that you have planned your finances in such a way that you are able to live happily in retirement with no debt and, in fact, you have some surplus capital that you would like to give to your son.
You are correct when you say that interest rates are very low at the moment and, in fact, they may be lower when you read this than they were when I wrote it if rumours about the Bank of England reducing base rates this week are true. If you are comfortable that you have more than enough to live on and that you will never need the cash that you plan to give your son then it makes sense to take this course of action.
It’s good that you are being clear on the fact that you are giving your son money rather than lending it to him, and it may be a good idea to put that in writing since that way there is no dispute in the future if you decide that you were rash in giving it to him and would rather have it back.
To be fair, that is about protecting him rather than you but anyone else reading this who is considering a loan rather than a gift would certainly be wise to make sure that they kept a record of the amount that was loaned, when it was loaned and what was expected in terms of a repayment plan.
I presume from your email that you only have one son.
If you have other children – and, again, this applies to everyone else reading this – then it can cause a problem if you give money to one, or help them out in some other way, without making the same gesture to the rest of your children.
There is absolutely no limit on how much you can give away to other people and when you are able
to give it away. The only consideration is whether you, or the person you are giving the money to, will have to pay tax on it.
Income tax is not charged on gifts, so neither of you will have to worry about that. Instead, the potential tax charge that your son might face is inheritance tax.
Whether this is a problem or not is dependent on the size of your estate, in other words the value of all of the assets that you leave when you die.
The first £325,000 of your assets is exempt from inheritance tax and anything over that is charged at 40 per cent. If you are married, you can pass on the full value of your estate to your spouse without paying any tax charge – but there could then be a charge when you die if your combined estate is worth more than both of your allowances, in other words an estate greater than £650,000.
If your husband has died before you then it is likely that his nil rate band (the technical term for the £325,000 allowance) will have passed to you which means that you can pass on £650,000 to your beneficiaries without them having to pay any tax.
As well as this, you are allowed to gift up to £3000 a year to children tax free so if your estate was likely to face a tax bill then you could spread the payments to your son to avoid this tax.
If your estate is large enough to pay tax and you give your son £10,000 today and die within seven years of the gift then the money will be added back into your estate and tax charged on it.
It will be taxed on a sliding scale depending on when you die so your son might not have to pay tax on the full amount.
If your estate is worth less than £325,000 then you can gift him the money and anything else you want to give him, with no tax worries.