The average first-time buyer deposit in the UK was £33,127 in 2018. No wonder then that the Bank of Mum and Dad (or Grandma and Grandpa) is so often persuaded to help.
Among the issues to consider when helping children (or grandchildren) buy their first home are the inheritance tax (IHT) consequences of gifting this money.
And it’s not just gifts for buying a home that have tax implications, it’s many other gifts too.
Gifts between spouses or civil partners are free from IHT. But gifts to other relatives or friends can be counted in your estate for IHT purposes if you die within seven years of making them.
So, if you stumped up for a deposit; kindly bought your family a surprise holiday; paid for your son’s new boiler; or plan to reward a grand-daughter with a nearly-new Fiat 500 for passing her exams, this will need to be included in your IHT planning. Each of these gifts is potentially liable to inheritance tax or could take your estate over the IHT threshold.
You can, however, make use of allowances. These include gifts:
- of up to £3,000 per person per tax year
- up to £250 per recipient on any number of occasions (to cover birthday, Christmas presents etc)
- up to £5,000 from each parent to a child in anticipation of that child’s marriage or civil partnership (and lesser amounts from other relatives)
- made as part of ‘normal expenditure out of income’.
This means that, in practice, the Bank of Generous Relations may well be able to help the younger generation to buy homes, cars, boats or whatever else they need, without jeopardising any IHT arrangements. But this needs careful planning well in advance, and an understanding of the small print around these arrangements.
