More and more parents and grandparents are helping their children and grandchildren to get a good start in life, often by helping with education costs or a deposit for a property. However, there is some evidence that by doing so they may be putting their own standard of living at risk.
A recent study by Investec Wealth & Investment found that 32% of parents and grandparents aged over 55 are currently planning or already giving money to their children and grandchildren at an average of £5,026 a year. Of these,18% plan to take advantage of the new pension legislation to free up cash to give to their family.
However, the danger is that in the process they are cutting back their own lifestyle expenditure – 18% believe that they are giving away too much.
Giving money away at the wrong time or in the wrong way could result in your children or grandchildren facing a tax bill at a later date.
The new family home allowance is being introduced in stages over four years, with a limit of £100,000 from April 2017, rising to £175,000 per person in 2020. This is in addition to the individual allowance for Inheritance Tax (IHT) which remains unchanged at £325,000.
Everyone has a £3,000 IHT annual exemption, and you can make gifts of £250 to as many people as you like providing they aren’t also the recipient of your £3,000 allowance.
Making gifts on marriage (up to £5,000 to a son or daughter, £2,500 to a grandchild and £1,000 to anyone else) and gifts from your surplus income can be good ways of reducing exposure to IHT.
A Question of Balance
With the continued rise in life expectancy, it’s important for donors to have enough capital for their own needs, remembering that there may be need for long-term care provision at some point in the future. Inheritance Tax is a complex matter and taking advice is essential as everyone’s financial situation is different.
For professional help, advice and guidance come and speak to a Financial Adviser at Logic Wealth Planning