Morag Yellowlees, Partner in our Private Client team has warned parents and grandparents about the risks of being too generous when helping younger generations to get onto the property ladder during the cost-of-living crisis. Financial gifts given to children and grandchildren could end up costing dearly in bigger tax bills.
Recent research shows that first-time buyers are turning to the bank of mum and dad and gran and granddad to fund deposits for new homes.
The issue arises because rules on inheritance tax in particular could come back to haunt families who have dug in too deep to stump up the cash. It could result in an unexpected – and unwanted bill – if the person behind the gift dies within seven years.
Morag Yellowlees said: “As the cost of borrowing rises, families are stepping in to help financially where they can. This is increasingly the case not just with parents, but with grandparents too.
“Securing a deposit is challenging enough, but with daily costs going up for everyone, some will find it even more difficult to save what they need. Their loved ones naturally want to support them. Unfortunately some gifts come at a cost which many simply are not aware of, should inheritance tax become an issue.
“The more families that gift money to help buy a home – and other things – the greater the number of people could find themselves with an unexpected bill.”
A study by Aviva found that homeowners, especially those who are mortgage free, plan to use investments and their property value to help family members to buy their first homes.
About a fifth said they planned to give cash to children or grandchildren to help them nail down a property. Morag said that with soaring inflation and rising interest rates, younger generations were increasingly likely to ask for their parents’ financial support.
Morag added: “The likelihood is financial support from relatives will only increase. This extends to more than just buying a home. “It’s a commonly misheld view that it’s just help with buying a home which carries risk when it comes to tax.
“But HMRC says a gift can be anything which has value. That could include help with the cost of major house repairs, a present of a car or family treasure. Inheritance tax rules are complicated, but with the growing number of people relying on relatives, there are more who may fall into this trap.
“It is still possible for help to be given, so long as people seek expert advice before they make their gift.”
This article featured in the Daily Express on Friday 16 December 2022.
