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Gifting Money During Your Lifetime

Gifting money during your lifetime – are there any Inheritance Tax implications to consider?


The proportion of first-time buyers relying on inherited wealth or loans from the ‘bank of mum and dad’ has reached a historic high and young people on lower incomes are finding it almost impossible to get a foot on the housing ladder.  The Bank of England has raised interest rates for the sixth time in a row from 1.25% to 1.75% and the cost of borrowing is increasing.  Many grandparents leave some or all of their assets directly to their grandchildren to help them financially (generation skipping).


34% of first-time buyers in England now turn to family for a financial gift or loan to help them buy their home compared to 20% seven years ago.  A further 1 in 10 rely on inherited wealth.


It is not only first-time buyers who benefit from family support – 12% of existing owners are also benefitting from a gift or a loan when buying a new home.


Those who receive money or a loan from their family members can, on average, buy their first home 2.6 years earlier than those who do not.  In London, this figure rises to 4.6 years.  So, it is not surprising that some people decide to gift money to their loved ones to help them purchase a home.  But if you are thinking about gifting a substantial sum, you should seek professional advice as there may be Inheritance Tax implications.


Every individual has an Inheritance Tax allowance (called a ‘nil rate band’) of £325,000 meaning that, when they die, they can leave an estate worth £325,000 without Inheritance Tax being payable to HMRC.  The amount over the threshold is taxed at 40%.


If you give money away during your lifetime, there is a risk that you will die within 7 years of the date of the gift.  If that happens, the value of the gift is added back onto the value of your estate as if you never gave the money away.  This may push you over your Inheritance Tax threshold and result in Inheritance Tax being payable from your estate.


If you are going to make a substantial gift, it is best to do it as soon as possible to get the 7-year clock ‘ticking’.  However, it is important that you take professional advice before making the gift as you may be able to gift the money in a way that can prevent Inheritance Tax implications.


If you would like any further information or advice on lifetime gifting, please contact a member of our Wills and Estate Planning department on 01256 320555 or mail@clarkeandson.co.uk



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