InvestmentsMar 29 2023

One in five use investments to help family amid cost of living crisis

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One in five use investments to help family amid cost of living crisis

With millions of Britons struggling financially, many are turning to the bank of mum and dad to make ends meet, according to research by Continuum.

The IFA firm said while many Britons plan on leaving their wealth to future generations on their death, others are not waiting until they pass away to help.

One in five investors said they plan to use money from their investments to help family members battle the rising cost of living, helping to cover mortgage payments and household bills.

However, Continuum said Britons need to be careful with their gifting to not be caught out by unexpected tax bills.

Richard Watkins, certified financial planner and chartered wealth manager at Continuum, said: “Many of our clients have seen the problems the younger generations are having with their finances at the moment and are asking us how they can best offer financial support.

“By giving a pre-inheritance, loved ones can have the cash they need when they need it, whilst our clients can have the pleasure of seeing them put to good use.

“However, it is important that you don’t create big financial problems for either yourself or your loved ones down the line.”

There can be some tax advantages of passing on wealth before death.

Inheritance tax is becoming an increasing burden for many and is charged at 40 per cent of everything in an estate above a £325,000 threshold, although there are some concessions relating to the family home.

Yet, giving wealth away while an individual is still alive does not avoid IHT as if the estate is worth more than £325,000, it will need to be done seven or more years before death to avoid IHT.

If an individual dies within that seven year period, there’s a sliding scale of liability. For example, beneficiaries will pay 40 per cent if the individual died within three years, and 24 per cent if it was between four and five years.

However, Continuum said there are several ways in which Britons can pass wealth onto the future generation now without facing tax charges.

For example, an annual exemption gift of up to £3,000 per year (or £6,000 per couple), and can also be given to children if they are in full-time education and the money goes towards tuition costs or maintenance - including paying off a student loan.

Another exemption which enables the passing of wealth without additional taxation is normal expenditure out of income. 

Under this exemption, parents and grandparents can fund regular savings plans for their children and grandchildren without attracting a tax liability provided the funding is from income rather than capital and does not disturb their normal standard of living. 

This means they can fund stakeholder pensions, unit trusts, Isas, or cash accumulation for items such as university costs and this does not form part of the £3,000 annual gift allowance.

Watkins said: “If properly arranged, pre-inheritance giving while you still have many more years to live could not only let you see your loved ones benefit from what you give, it could greatly reduce the chance that there will be any inheritance tax liability for them to pay on what is left.

“As always, when tax is involved, getting expert help is going to be vital if you are to avoid the pitfalls.”

Last week, it was reported that HM Revenue and Customs saw a boost of almost £1bn last year in inheritance tax receipts. 

Inheritance tax intake for April 2022 to February 2023 totaled £6.4bn, an increase of £0.9bn on the same period a year earlier. 

The total inheritance tax intake for 2021/22 - the last full financial year - was £6.1bn, meaning this year's intake has already surpassed last year's.

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