04 Jul 2017

Families warned about getting 'caught out' by Inheritance Tax

Families warned about getting 'caught out' by Inheritance Tax

Families are still in danger of being caught out financially by Inheritance Tax (IHT).

An over-55s finance specialist highlighted the possible risk to the 'bank of mum and dad' of falling foul of rules.

Its study shows almost half of parents and grandparents still do not understand the tax rules on gifting, and nearly three out of four say the rules are very complicated.

Lack of awareness

Key Retirement’s research found 38% are not aware their estate might be liable for IHT on gifts to family members.

The study, which focuses on the gifting behaviour and plans to gift from the 'bank of mum and dad', shows 58% want to be able to help children and grandchildren onto the property ladder.

Around 18% of parents and grandparents would want to help pay off debts and student loans, while 13% would want to fund a wedding for children or grandchildren.

There is normally no IHT to be paid if the value of your estate is below the threshold of £325,000, or you leave everything to your spouse or civil partner, or you leave everything to an exempt beneficiary such as a charity.

In addition, a home allowance has been introduced recently. To be eligible, you must pass your house or a share of it to your children or grandchildren.

The home allowance is currently £100,000, but it will rise incrementally to reach £175,000 in 2020-21.

Further rules

Some gifts and property are exempt from IHT, such as some wedding gifts and agricultural property. But, if the person who died gave a gift in the seven years before they died, it’s counted as part of the estate and likely to incur IHT.

Dean Mirfin, technical director at Key, 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.

"Younger generations need a helping hand more than ever. Early inheritance can have life-changing consequences for some families."

Estate planning

Aberdein Considine can assist you with establishing a trust, which can help both in protect assets and save tax.  Significant gifts are only subject to IHT if the person making the gift fails to survive for seven years.

This means that there is a great deal of sense in starting the process of transferring assets as soon as you can afford to do so.

Click here to find out how we can help.

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