Inheritance Tax: What Are The Benefits Of Intergenerational Gifting?

According to a survey from mortgage brokers Trussle, generous grandparents are increasingly financially supporting younger family members. The study found that a third of millennial homeowners have received financial help from their grandparents, receiving an average of £7,400.

As well as this, equity release provider Key found that 15% of grandparents had contributed towards their grandchildren’s higher education, with another 20% planning on doing so over the next decade.

For younger generations, steep education and housing costs mean that these gifts can help them reduce debt and qualify for a mortgage; however, there may also be tax advantages for grandparents. For example, if you have substantial assets, you may wish to mitigate future inheritance tax bills. After all, estates worth more than £325,000 are taxed at 40%, although married couples and civil partners can pass on £325,000 each, tax-free.

Giving Gifts

As property values across the country continue to rise, many families have been looking at ways to reduce any inheritance tax liability. Gifting family members while still living is an effective way to do this, however there are various rules that you must consider.

The simplest option is to make gifts from your regular income or limit them to a maximum of £3,000 a year per donor. If you are considering giving larger amounts, you can give away gifts free of inheritance tax providing you live for at least 7 years after you give them. This rule is in place in order to stop people giving away their assets while on their deathbed. If you were to pass away during these seven years, its full value would be included in your taxable estate. There is, however, a taper relief that may reduce any tax payable on the gift, were you to die between three and seven years of making it.

Preparing For Your Future, Too

Before you decide to make any substantial gifts, it is important to ensure that your own financial future is secure too. People across the UK are generally living longer, so you may need additional finances later in life. Discover more about futureproofing your retirement finances.

There is a range of different factors you may also consider such as making a will or setting up a trust. Find out more about ways to reduce inheritance tax.

Estate and inheritance tax planning can be complicated, so it is best to seek specialist financial advice from a qualified adviser. If you would like to find out more, please contact one of our independent financial advisers by calling 01926 492406.