Many parents and grandparents are unaware of the potential inheritance tax (IHT) implications of gifting money, Openwork has warned.
A December survey of 1,280 adults from the advice firm, which included 760 parents and grandparents, found nearly half (46 per cent) were unaware they could face a tax bill if they gave money to their children and grandchildren.
Four in 10 (38 per cent) also did not know there were any potential tax risks from helping out families financially.
Meanwhile 80 per cent of those who were aware of a possible tax implication said they found the rules complicated.
Taxpayers can give away £3,000 worth of gifts each tax year without them being added to the value of their estate.
But any gifts of cash or other assets that exceed £3,000 a year in the seven years before a person dies are included in the value of the estate, excluding exempt gifts, such as for birthdays and weddings.
According to Openwork’s survey, one in five had gifted at least £3,000 to family.
People who receive gifts might also have to pay inheritance tax, if the benefactor gave away more than £325,000 and dies within seven years.
Mike Morrow, chief commercial officer at Openwork, said: “It is natural for families to want to help each other financially when they can and it’s becoming increasingly important given rising property prices and the financial impact of Covid-19.
“Unfortunately, it’s not that simple providing financial help and the Bank of Mum and Dad and Gran and Grandad need to ensure they are not opening themselves up to a tax bill or even possibly landing their relatives with tax issues.
“Professional financial advisers can help people with IHT planning and how to protect inheritances. They will provide support on how to navigate the potential pitfalls and ensure that everyone including HMRC receives what they are expecting and nobody is left with a surprise bill.”
Morrow’s comments come as a separate survey of 200 advisers from Canada Life in November found 58 per cent of IFAs expected demand to increase for tax and estate planning advice over the next five years.
Richard Jameson, partner in the private wealth team at Saffery Champness, said: “The important point for grandparents really is good inheritance tax housekeeping, including reviewing plans every three to five years, taking into account the grandparents’ age and the grandchildren’s circumstances as well as planning to take advantage of allowances such as the nil rate band and the main residence nil rate band.
“Good housekeeping includes maintaining records of any gifts made. Not doing so can cause headaches further down the line when an estate is being administered.”
chloe.cheung@ft.com
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