We all want to help our children if we can. Life’s path can be difficult and extremely expensive so providing cash support is one way of being there for them, helping to overcome the financial hurdles they will undoubtedly face.
Many parents are finding that gifting money over a period of time is an ideal alternative. It’s a good way of reducing the value of an estate in terms of potential Inheritance Tax implications while providing immediate benefits for loved ones.
How gifting money works
There are certain things to remember when gifting money:
You can make a tax-free allowance of up to £3,000 per year without paying Inheritance Tax.
If you haven’t gifted £3,000 this year, you can make an allowance of up to £6,000 next year – but it only applies to the following year. If you have gifted part of the £3,000 this year, say £2,000, you can make up the difference next year along with next year’s allowance, a total of £4,000 – but, again, it only applies to the following year and can’t be carried forward beyond that.
Parents can also gift up to £5,000 tax-free to their child as a wedding gift or in respect of a civil partnership – providing the ceremony goes ahead.
Small gifts of up to £250 can be made to as many people as you like each year without paying Inheritance Tax.
As with all tax matters, it’s important to seek professional advice to ensure you are doing the right thing for you and your family.
Where there’s a Will there’s a way
If regular payments are gifted over time the amount built up can be substantial if much of it is saved and not spent. But what happens to that money if the grown child dies without making a Will?
Let’s assume a couple has several children and has gifted them sums of money over many years, which has now grown into a considerable sum.
The parents had the foresight to make Wills and had protected their children, now all adults, from paying Inheritance Tax but had not given any consideration to what would happen if one of their children died without making a Will.
In these circumstances any money would return to the parents, undoing all their hard work in gifting the money since the children were very young and wasting years of productive tax planning.
The simple answer is for the ‘children’ to each make a Will to avoid the problem – with each ‘child’ leaving their money to siblings. Each Will would safeguard the interests of the parents and their offspring.