Expert gives inheritance tax warning to ‘Mom and Dad’s Bank’ amid cost of living crisis
Rising bills will lead Scots to turn to ‘Mummy and Daddy’s Bank’ as the cost of living crisis deepens, an expert has warned.
Lawyer Grant Jonson said that as inflation rises, more parents will feel pressured to give their children money.
But he warned that those who gave lump sums of cash to their offspring could “come at a cost” in terms of inheritance tax.
While the so-called Mum and Dad Bank has been more traditionally linked to parents helping their adult offspring up the property ladder, Mr Johnson said the rapidly rising cost of living, combined with a parent’s natural instinct to help, might see more people turn to it.
In such situations, he said one should always seek expert advice, to avoid “potential inheritance tax implications”.
HM Revenue and Customs (HMRC) rules state that cash or items worth up to £3,000 can be exempt from tax each year – although different limits apply if cash is given to a child for wedding expenses.
Gifts worth more than this amount could be subject to inheritance tax if the person making them dies within seven years.
Mr Johnson, of Lindsays law firm, said: ‘A parent’s natural instinct is to help wherever they can. Sometimes that means they want – or need – to help. money to his children.
“It’s possible this will become even more common as the bills for all of us increase.”
He added: ‘Looking only at the property market, it may even be that more first-time buyers are dependent on their families for support, as they can save even less due to the rising cost of daily living.’
But the lawyer said: “Unfortunately some gifts have a cost that too many people don’t realize, perhaps most often when trying to help someone buy their own home.
“If or when you open Mum and Dad’s Bank, you should be aware of the potential inheritance tax implications.
“It is a commonly misconceived view that it is simply help with buying a house which carries tax risks. HMRC say a gift can be anything that has This can include help with the cost of repairs or major home projects, a gift of a car or a family heirloom.
He continued: “With the growing number of people relying on loved ones to help them climb the property ladder, there are more who can fall into this trap – even before the financial pressures mount. But it’s still possible to help be donated, as long as people seek expert advice before donating.”
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