With more than 9 million people receiving 80% of their wages and with the threat of future redundancies, your children may turn to you for help. If you are thinking of giving money to your children, here’s a handy guide to help you avoid the pitfalls of inheritance tax (IHT).
You can give up to £3000 each tax year without HMRC counting it as being part of your estate for IHT purposes. This is known as your ‘annual exemption’.
If you do not make a gift one year, you can carry the allowance forward to the next tax year.
You can give unlimited gifts of up to £250 a person in a year.
If your child is getting married or forming a civil partnership, you can give them £5000 without it attracting IHT at a later date. One word of warning on this however, this is conditional on the wedding taking place. If, due to coronavirus, your child is forced to
postpone the wedding until the following year, if you made the gift in the current year, HMRC would include it in the value of your estate for IHT purposes.
Direct payments to an account
You do not need to hand over the cash directly to your child, you can pay into their pension or if they have a lifetime ISA, you can help them save for their first property.
Interest free loan
Rather than giving a gift to your child, you may want to offer them an interest free loan. A loan allows you to have some control over the money and to request it back if you need it. You should draw up an agreement outlining how much you have loaned, and you expect your child to pay it back.
You may wish to convert the loan into a gift at a later date. If you decide to do this, you should do so in writing. A loan counts as part of your estate when you die, but a gift does not as long as it is within the rules. If you plan to do this, remember the clock on the seven-year taper relief rule only starts ticking from the day the loan is converted into a gift.
If your child needs the money to help them buy a house, it is worth noting that most mortgage lenders will not accept a loan as a deposit.
Potential challenges to wills
If you gift or loan money to one child but not to any other, this can lead to disputes over inheritance at a later date. Keep a written record of any gifts or loans and your reasons for giving them. This may help resolve any future disputes.
For detailed advice on inheritance tax contact Debbie on 01704 532890 or email firstname.lastname@example.org