Inheritance Tax: How Much Money Can You Give Grandchildren Without Paying Tax HMRC | Personal finance | Finance

Latest figures from HM Revenue and Customs (HMRC) show a record amount of inheritance tax was levied in June. However, there are key ways Britons are paying less.

Although Brits can give as much money as they want to loved ones, it is worth being aware of the tax implications.

Jenny Holt, Managing Director of Client Savings and Investments at Standard Life, said: “Sharing wealth with children and grandchildren can bring a wonderful sense of well-being and joy to people who wish to pass on some of their savings to family members, often to help with big expenses such as weddings or education costs, to pay off debt or move up the property ladder.

“While you can give as much of your money to loved ones as you want, being aware of the tax implications is essential to avoid unforeseen tax charges that reduce the full benefit of your gift.

“There are many tax-efficient ways to support your loved ones and being knowledgeable about the options available to you based on your family’s circumstances will put you in the best position to get the most out of your money and theirs. coming.

“However, this is a complex area, so it is worth seeking financial advice for your situation.”

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Standard Life’s Jenny Holt gives tips for making tax-free gifts to children or grandchildren:

Give regularly – “You can gift up to £3,000 to anyone in a tax year and gift £250 to as many people as you like without paying Inheritance Tax (IHT). It can be carried over for a year, but if you don’t use it, you’ll lose it. Thus, regularly giving money to your loved ones can be an effective way of minimizing the IHT to be paid on your estate upon your death.

Pay in their ISA – “You can open a Junior ISA (JISA) for your child or save one in the name of your grandchild. Currently you can pay up to £9,000 in total in a tax year into a JISA and this money can be invested giving their savings a chance to grow over time. They can access the money when they turn 18, and they won’t pay any tax on anything they withdraw or pay capital gains tax on the growth of their investments. There’s also the option of backing their Lifetime ISA – which can be opened by anyone between the ages of 18 and 39 and could help them save for property or boost their retirement savings.”

Consider the Benefits of Using a Trust – “Using a trust allows you to provide for your grandchildren while you are still here, in addition to offering a number of tax advantages. As a trustee, you retain an element of control over the funds and how and when they are paid out, while gifts made to the trust can reduce your estate for IHT. Using a discretionary trust gives grandparents the most flexibility and control, but the taxation is higher and more complex. You should seek financial advice if you are considering using a trust to help you choose the right option for your situation.

Give bigger gifts…but be aware of the seven-year rule – “If you wish to donate larger sums to individuals, these will not count for IHT purposes if you live seven years later. If you don’t live for the full seven years, the money you donated will be added to the value of your estate, eroding your £325,000 threshold.
Remember that you cannot deduct part of a tax-free allowance previously inherited from a spouse or partner, or the tax-free allowance (up to £175,000) associated with the gift of the family home to children or grandchildren, against these gifts for life. If you have used up all available IHT allowances, the donation will be taxed up to 40%, although the amount of IHT payable may be reduced depending on the number of years since the donation – this scale of reduction is known as conical relief.

However, people should keep in mind the differences between a gift to a grandchild and a gift to a child. Some key points to note:

People can give gifts worth up to £2,500 a year to a grandchild or great-grandchild (on top of your annual exemption) if they marry – but that increases to £5,000 if it is your child.

Grandparents cannot open a JISA for a grandchild – this must be done by the parent or legal guardian of the child.

Parents who donate to an unmarried child under 18 will see the income from the donation taxed as if it were theirs. This is to prevent parents from trying to get tax relief using their children’s allowances. This rule does not apply to grandparents or parents’ donations to the JISA of their children.

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