Inheritance Tax: How to Help Your Kids Buy a Home and Lower Your Bill | Personal finance | Finance
Parents and grandparents can help adult children buy a home without handing over all their earnings to HM Revenue and Customs (HMRC). Plus, it could also lower their inheritance tax bill and leave them with more money to spend.
When it comes to climbing the property ladder, more than a third of Britons (33%) rely on the Bank of Mum and Dad or the Bank of Grandma and Granddad.
According to a recent legal and general survey, older Britons give an average of £19,000 to younger family members to help them get on the housing ladder.
However, anything over £3,000 could be subject to a hefty Inheritance Tax (IHT) bill of 40%.
That said, there are ways to increase this allowance and avoid paying the IHT altogether.
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Ms Corr said: ‘Trusts allow you to give money, property or investments to someone else to look after for the benefit of a third party.
“When you create a trust, there will be a trustee (who owns and manages the assets of the trust) and one or more beneficiaries (the person or persons for whom the trust is created).
“Often they are unable to manage it on their own due to their age, disability, etc.
“Once assets are placed in a trust, they no longer belong to you, and that is how they are tax-efficient.”
Due to the complex nature of inheritance tax and trusts, it may be wise to seek advice from an independent financial adviser before embarking on this course.
There is certainly benefit in reviewing the rules, thresholds and allocations as collectively the nation gave away £125million in ‘unnecessary’ IHT in 2020.
Britons can choose to make gifts seven years before their death, which would be classified as potentially exempt transfers.
They may also want to make the most of cash grants – people can offer up to £3,000 per tax year plus small gifts of £250 or less.
As wedding season approaches, it is also worth bearing in mind that taxpayers may provide wedding and civil partnership gifts.
This could allow them to donate an additional £5,000 without being subject to IHT.
They can also carry over an allowance from a previous year if it has not already been used.
For example, a parent could gift their child up to £11,000 tax-free in one year – a gift of £5,000 made in consideration of the marriage plus that year’s £3,000 annual exemption and that last year if it has not already been used.