Giving a financial helping hand to grandchildren (or other relatives) can come with tax and care risks if you rush in without advice.
Around a quarter of grandparents have helped, or intend to help, grandchildren onto the housing ladder, according to research by Aviva. The typical amount given is over £31,000.
It’s a lovely thing to do when young people are struggling to raise a deposit for a home, and older generations have property wealth and investments to spare. But generous grandparents and parents should beware that making these gifts can come with a potential tax trap. If you die within seven years, an inheritance tax (IHT) bill may be payable.
Implications for care
There are other considerations for older relatives wanting to help their families with financial gifts. For example, it’s important to do the maths, keeping aside sufficient money or assets to pay your own future expenses, such as the cost of care.
In addition, if you find yourself seeking local authority assistance with care costs, your previous gifts of capital or assets could affect your entitlement.
Navigating the maze
All this means that gifting to relatives can be hazardous territory. On the one hand, people’s eagerness to avoid IHT may lead them to gift assets relatively early on; on the other hand, that could leave them with issues around their own cost of living.
Some of your options for IHT-Free Gifts
- Small gifts up to £250 to anyone you wish in any tax year
- Annual gifting allowance of £3,000
- Gifts on weddings / civil partnerships up to £5,000 per parent or £2,500 per grandparent
- Gifts out of income, as part of a regular pattern
- Gifts between spouses / civil partners
- Gifts made over 7 years before your death
It's a complex situation, but not an impossible one! And it certainly doesn’t mean grandparents having to leave hard-pressed relatives to struggle with the costs of a mortgage or a new boiler. Yes, there are IHT traps, but there are also plenty of reliefs and exemptions that could spare your family a surprise tax bill.
In terms of your own future financial needs, it’s difficult to predict your own future or what tax and care rules will be imposed by future government. Even so, there is plenty we can do to help you navigate this complex landscape, avoiding tax and care traps, and putting in place flexible plans designed for the ups and downs of life – whatever your age and family situation.
Alison McKay, Partner, Private Client Services
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