Inheritance tax: how to help the children of a house without handing everything over to HMRC | Personal finance | Finance

When it comes to moving up the property ladder, more than a third of people (33%) rely on Mom and Dad’s Bank – or even Grandma and Grandpa’s Bank. So how can grandparents and parents avoid handing over all their money to HMRC?

HMRC is set to collect £6.9billion in inheritance tax in 2023 to 2024, a significant portion of which is due to donations gone wrong.

Every year Britons are allowed to give away £3,000 without incurring a hefty inheritance tax bill.

According to a legal and general survey, the average payment to young family members to help them move up the property ladder is £19,000.

This would mean Britons face a hefty inheritance tax (IHT) bill of 40% on the amount over £3,000, if they had already exceeded the inheritance tax threshold which is normally £325,000 £.

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Another way for generous grandparents and parents to avoid giving all their money to the taxman is to take advantage of the wedding gift allowance.

Emi Page, partner at law firm Winckworth Sherwood, explained: “A parent can offer their child up to £8,000 – a gift of £5,000 made in consideration of the marriage plus the use of their annual exemption from £3,000.

“Or possibly up to £11,000 if they can carry over an unused full annual exemption from the previous tax year.”

However, experts advise the older generation not to forget their own needs and make sure there are enough left over to enjoy their retirement.

Another way some may seek to pay less inheritance tax is to put the family home in the name of a child, but there are some complications with this method.

Tim Latham, Certified Financial Planner at Equilibrium Financial Planning, told “The problem with putting your house in your children’s name is the rules around gifts with reservation.

“These rules mean that if you continue to benefit from the property after the gift, for example still living in a house, the gift would not qualify and inheritance tax would still be due on the value of the property.

“For the house to be considered a gift for estate tax purposes, you must pay your children market rent after you gift your house to them.”

For anyone considering going down this road, Mr Latham advises Britons to beware and seek professional advice.

He added: ‘Your children may have to pay income tax on the rent you pay them, and there may also be capital gains tax payable between the date of the gift and the date of death. .

“Depending on the financial situation of your children, there is also a risk that you will lose your home in the event of divorce or bankruptcy.

“It’s important to think about what you want your money to achieve, who and how you want to help.”

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