It is important that you are financially secure and as prepared as you can be for the future, but we understand you want to make sure your loved ones are financially secure and protected too.
With the everyday cost of living increasing, Retirement Advantage has revealed new research which shows a significant proportion of older relatives gifting to their children and grandchildren to help with everyday costs, as well as weddings, holidays and getting on the property ladder.
Two in five people aged 50 or over revealed they have helped children or grandchildren financially in the last six months.
Whilst gifting money can be beneficial to your loved ones, it is important to understand the tax rules to make sure you and your loved ones aren’t left paying a huge tax bill.
Annual gift allowance
Each person has an annual exemption and you are able to give away £3,000 a year without any inheritance tax implications. You are also able to carry any unused allowance from the previous tax year.
Marriage gift exemption
For gifting specifically for weddings, you can gift up to £1,000 to anyone, for grandchildren up to £2,500 and for children up to £5,000.
Small gift exemption
You can gift up to £250 per person each tax year, however if you give more than this then it will instead begin to use part of your £3,000 annual gift allowance.
Charitable donations exemption
All manner of gifts to charities are exempt. And if you are willing to donate at least a tenth of your net wealth (estate above your nil rate band) on death to good causes, the Government will reduce your inheritance tax rate from 40% to 36%.
The seven year rule
There is nothing to stop you giving away larger amounts directly to your beneficiary, but for these to be exempt from inheritance tax, you must survive seven years from the date of the gift. The tax will generally be calculated when you pass away.
If you die within seven years of making a gift and hadn’t used your annual gift allowance in the year the gift was made, your family may be able to offset this against the initial amount of the gift.
For seven years after you make gifts they can be considered ‘potentially exempt transfers’, or PETs.
If you die within the seven-year period, your beneficiaries may still have to pay tax on these PETs, on any part of the gift that is in excess of your inheritance tax nil rate band. However, the tax payable on the excess over the nil rate band will gradually reduce after the first three years. This is known as ‘Taper Relief’.
For a variety of reasons, you may not want your beneficiary to recieve a gift immediately. This could be because they are young children and you want them to have the money to buy a house when they are older, for example.
Gifts to Trust allow you to place money into a suitable investment, which is then wrapped in a Trust. A Trust is simply a legal wrapper that let's you determine precisely what happens to the money and assets inside it - and when. You can choose who you want to be the trustees responsible for distributing the capital of the Trust when the time comes.
If you’re keen to support your loved ones, we offer personalised advice on planning your savings investments for your future needs. We can help you to establish the most tax efficient way to withdraw your funds without incurring a large tax bill - so you can have greater peace of mind your loved ones will be looked after.
Please remember that stock market-based investments place your capital at risk and you may get back less than you invested. The value of your investments and any income from them may fall as well as rise. Some areas of Inheritance Tax planning are not regulated by the Financial Conduct Authority.