Giving family a helping hand
The growing need to provide financial assistance to the younger generation is a recurring theme in today’s society. How can parents or grandparents help younger family members and are there any potential pitfalls when doing so?
The House of Lords Committee on Intergenerational Fairness and Provision recently highlighted how the younger generation are increasingly being helped onto the property ladder by older family members. Quoting data from an April 2018 survey conducted by Douglas McWilliams, their report said that 27% of all UK house purchases were made with contributions Giving family a helping hand from the older generation, with gifted lump sums averaging £5,000 to £6,000 (6).
However, if you are thinking of helping a younger family member financially then you do need to consider any tax implications, particularly in relation to Inheritance Tax (IHT). Everyone has an ‘annual exemption’ for IHT purposes which allows them to give away up to £3,000 each tax year. If you don’t use it, you can carry over any unused allowance to the following tax year meaning you could potentially gift up to £6,000 without it counting towards your estate’s IHT liability; and this amount rises to £12,000 for a couple.
You can also make more substantial gifts, known as ‘Potentially Exempt Transfers’. In this instance, you need to live for seven years after making the gift for it to be totally tax-free.
(6) Intergenerational Committee, 2019