Inheritance Tax  

Bank of Mum and Dad risks IHT gift trap

Bank of Mum and Dad risks IHT gift trap

The Bank of Mum and Dad - and Gran and Grandad - risks falling foul of rules on gifting and inheritance tax, research from over 55s retirement specialist Key Retirement has suggested.

Its study of 2,011 UK homeowners - of which 912 were aged over 55 - showed almost half of parents and grandparents do not understand the tax rules on gifting.

Nearly three out of four (73 per cent) say the rules are very complicated.

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The research also found 38 per cent are not aware their estate might be liable for inheritance tax on gifts to family members.

Trystan Lewis, adviser at Chester-based Griffin Wealth Management warned: "There are technicalities surrounding gifts and inheritance tax rules that people won't necessarily be aware of, therefore it makes sense to take advice beforehand because the tax implications can be very costly."

The research, which focuses on the gifting behaviour and plans to gift of parents and grandparents, showed 58 per cent want to be able to help children and grandchildren on to the property ladder.

With average house prices at £217,000, this will mean paying out more than £40,000 for a 20 per cent deposit.

Around 18 per cent of parents and grandparents would want to help pay off debts and student loans, while 13 per cent 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 £1m for couples by 2020/21.

However, the higher allowances only apply to family homes and only after death.

The allowance otherwise is £325,000 (£750,000 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 per cent inheritance tax, if the threshold has is exceeded.

The good news is that for the majority of people gifts should be exempt where wealth is predominantly in the home.

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. "