15 Jun 2017 3:23 PM

The 'Bank of Mum and Dad' (or 'Bank of Any Other Family Member' to be fair) could very well be operating under the risk of falling foul of HMRC’s rules on gifting and inheritance tax (IHT).

Recently published research suggests that the study of almost more than 2000 UK homeowners (the majority of whom are either parents or grandparents):

  •  Half said they don’t understand the rules governing gifting relatives money
  •  Three-quarters described the legislation as “very complicated” and difficult to understand
  •  Almost 40% said they didn’t know that they would be liable to pay inheritance tax on monetary gifts they’ve made to family members

However as 58% of respondents stated they want to be able to help their children and grandchildren to take the first step onto an increasingly challenging property ladder.  And that first step, on average, will demand the first-time buyer finds an initial deposit of over £40,000; a figure that is substantially higher in the South East and higher still in London.

The only problem is, as this new study has highlighted, despite their good intentions people still seems to be largely unclear on the inheritance tax rules surrounding gifts.  

New inheritance tax rules introduced last month have increased a single homeowner’s IHT allowance to £425,000 while a couple’s allowance is £850,000, although it will eventually rise to £1m by 2020/21.  However it is important to remember the higher allowances only apply to property that has been used as a family homes which is passed to direct descendants and only come into force post mortem.  Up to that point the allowance is £325,000 for single homeowners or £650,000 for couples.

When it comes to gifting relatives money if you are planning to make a gift of more than £3,000 (in cash or in value) you would need to do that more than seven years before your death to avoid liability an IHT bill of 40% on anything above the £325,000 threshold.

All of this means it is more crucial than ever to seek professional advice if it is – again as this study would suggest – many parents’ intention to gift money to their family to help get them started in adult life. 

If you have any questions about a gift you would like to make to a family member, about your own inheritance tax position or about anything else relating to your personal tax situation please contact me for advice.