My mother in law is about to recieve a compensation payout from her husbands death.

Hi straff, and welcome to the forum. I'm sorry to hear of your mother-in-law's loss.

There is nothing to prevent her from giving her daughters a gift of money but, if she fails to survive them by seven years, this will be liable for Inheritance Tax if her estate is over the current limit. I think this is £325,000 but I'm sure other members will correct this if it's out of date.

For the money she wants to keep for her immediate needs and the balance that she wants to put into savings, there are many variables that will affect this. Would she want instant access to the money, or be prepared to invest it for the longer term? Has she already used up her tax-free ISA allowances? Is she a standard or higher rate taxpayer?

I would strongly recommed that she consults an IFA for a large sum of money like this.

Hope this helps.

Hi Straff and welcome to Money.co.uk

I have to endorse Feline's answer as 'par excellence'.

Hi,

Also worth checking:

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

She can only give £250 per person per year without it being counted as a 'potentially exempt transfer', but as she only have to survive 7 years for a large gift to become fully exempt, the sooner she makes a big gift the better.