Q: Can I pass on recently inherited cash (£10k) from my mum to my kids as a gift from surplus income (as I don’t need it), and avoid inheritance tax?
A: I’m afraid that you cannot treat a £10k inheritance as ‘surplus income’. Money received from a will is capital, not income. The ‘normal expenditure out of income’ exemption only applies to regular income (pensions, salary, investment income).
What you can do with the inheritance is use your £3k annual gifting allowance, plus any unused allowance from the previous tax year. Anything above this becomes a Potentially Exempt Transfer (PET) which fall outside your estate if you survive seven years after gifting.
You could ask for a Deed of Variation, whereby you redirect part of your inheritance within two years of death. This would treat the gift as coming from your late mother’s estate, not you. All affected beneficiaries must agree in order for this to be actioned.
