The Bank of Mum and Dad risks falling foul of rules on gifting and inheritance tax, according to Key Retirement. Its study shows almost half (47%) of parents and grandparents do not understand the tax rules on gifting, and nearly three out of four (73%) say the rules are very complicated. Key’s research found 38% […]
The Bank of Mum and Dad risks falling foul of rules on gifting and inheritance tax, according to Key Retirement.
Its study shows almost half (47%) of parents and grandparents do not understand the tax rules on gifting, and nearly three out of four (73%) say the rules are very complicated.
Key’s research found 38% are not aware their estate might be liable for inheritance tax on gifts to family members.
The research also showed 58% want to be able to help children and grandchildren on to the property ladder.
With average house prices at £217,000, this means paying out more than £40,000 for a 20% deposit.
Around 18% of parents and grandparents would want to help pay off debts and student loans, while 13% would want to fund a wedding for children or grandchildren.
New inheritance tax rules introduced last month mean single homeowners have new higher IHT allowances of £425,000, and couples allowances of £850,000, rising in stages to £1 million for couples by 2020/21.
However, the higher allowances only apply to family homes and only after death. The allowance otherwise is £325,000 (£650,000 for couples).
Any gifts over the value of £3,000 need to be given more than seven years before death or they are potentially liable to 40% inheritance tax, if the threshold is exceeded.
The good news is that for the majority of people gifts should be exempt where wealth is predominantly in the home. However, for those whom this would not be the case there should be greater incentive to gift.
Dean Mirfin, technical director at Key Retirement, said: “At a time when the financial squeeze on younger generations is getting worse it makes sense that grandparents and parents want to help their family now rather than waiting till their death.
“But there is real nervousness and confusion when it comes to the awareness around the rules of financial gifting.
“We would support tax breaks on gifts and early inheritance in those instances where the incentives can be used for major intergenerational gifts, which have a greater perceived societal benefit. From rising student loans to property prices younger generations need a helping hand more than ever. Early inheritance can have life changing consequences for some families and our study shows that equity release could be a major source for these gifts.”
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