Many parents now assist their children with getting on the property ladder and these are often large sums of money, without considering the risks of passing funds absolutely.
By passing assets absolutely, the funds are instantly your children's and under threat from the following:
- Divorce
- Creditors/Bankruptcy
- Care Fees
- Generational Inheritance Tax
Key considerations
- A common misconception is that there is Inheritance Tax on all gifts. However, this isn't necessarily accurate and with the correct planning we can potentially avoid Inheritance Tax on any gifts.
- In most instances, for gifts to be removed from your estate for tax purposes, you must survive 7 years from the date of the gift. This is dependent on type of gift and any previous gifting you may have completed. We would always advise discussing this with a professional advisor prior to any form of gifting.
- You can choose to gift absolutely (although not recommended) or via Discretionary Trust (for protection).
- Some gifts are considered exempt and examples of these are:
- Annual Gift Allowance – Gifts between spouses are IHT free, or you can gift a total of £3,000 each year.
- Small Gift Allowance – You can give as many gifts of up to £250 per person as you want each tax year, as long as another allowance hasn’t been used for the same individual.
- Birthday/Christmas Gifts – If these are from regular income, they are exempt from IHT.
- Weddings/Civil Partnerships – Each tax year you can give up to £5,000 to a child or £2,500 to a grandchild or £1,000 to any other person.
