- On July 9, 2017
The question ‘How much money can I give to my children and grandchildren?’ is one that most parents will ask at some point.
But for many, knowing what you’re allowed to give and the potential tax implications can become confusing, yet it doesn’t have to be.
One of the main concerns people have is Inheritance Tax (IHT). So let’s start off by dispelling a commonly-held myth: There is no limit on how much money you can gift to your children or grandchildren, or anyone else for that matter.
A gift is often known as a known as a Potentially Exempt Transfer or PET. It is only fully exempt if you survive for a full 7 years after making the gift.
However, if you die sooner there could be an IHT liability of up to 40% if your overall estate exceeds the IHT threshold of £325,000, subject to taper relief. If your estate is worth less than this then everything you’ve given is completely free from IHT. The £325,000 allowance is transferrable to a spouse on the first death meaning the survivor benefits from a £650,000 allowance.
As well as making an outright gift of cash or other assets you can make a gift to a trust. A gift to a discretionary trust can be useful to ensure that gifted funds are not lost to the consequences of your beneficiaries’ divorce or bankruptcy.
Gifts to a discretionary trust have a different tax treatment when the gift is in excess of your £325,000 allowance. Always take some professional advice to ensure that your gifting is well thought through and that there are no unintended consequences.
There are also a number of IHT-free gifts that the Government lets you make each year. The ones most relevant to parents and grandparents are:
- You can give away £3,000 worth of gifts each tax year – this is your exempted gifts annual allowance. Unused exemption can be carried over for one year.
- You can also give as many gifts of up to £250 per individual during the tax year as long as they are not in receipt of any other exempted gift.
- You can give up to £5,000 to a child for their wedding or civil ceremony.
- £2,500 to a grandchild (or great-grandchild) for their wedding or civil ceremony.
- Payments to help a person’s living costs, such as a child under 18.
For a free consultation about your financial needs call 0118 974 0159 or email firstname.lastname@example.org.