With the inheritance tax nil rate band remaining frozen at £325,000 since inception in 2008, more and more people are being pulled into the IHT net. To mitigate loss and reduce a potentially hefty bill, parents and grandparents are reminded of the different ways that could save thousands.
Around 35 percent of retirees have given money to their family or friends since the beginning of the year according to LV’s wealth and wellbeing monitor.
On average, those helping their grandchildren gave £15,000 while the average amount given by all adults was £8,400.
Clive Bolton, LV managing director said: “It’s understandable why grandparents want to help their family and pass wealth down through the generations.
“Gifting money early can reduce inheritance tax liabilities and a grandparent can gift up to £3,000 a year without being added to the value of the estate.
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“A couple could therefore gift £6,000 a year by using both your annual exempt amounts. If some or all of it was invested in a pension it would get tax relief.”
If the couple didn’t use their annual exempt amount to gift money last year, they can roll it over to this year taking their allowance up to £6,000 – or £12,000 between them if their spouse or partner is in the same position.
However it should be noted that any unused annual exemption can only be carried forward to the next tax year. After that it expires.
If someone is giving gifts to the same person, they can combine the annual exempt amount with the wedding gift allowance so they could give their child a wedding gift of £5,000 as well as £3,000 using their annual exemption in the same tax year, Shona Lowe, personal finance expert explained.
It was not just grandparents gifting family, as the LV research showed 39 percent of UK adults have helped family or friends financially from January to August 2021.
Of these, 11 percent said it was to support a loved one buying a house.
However for grandparents, this figure was higher with 24 percent gifting to their grandchildren to support them buying a home.
Mr Bolton highlighted to the Financial Times that another way grandparents could support their grandchildren was by setting up a Lifetime ISA for them.
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He said: “Only the child or grandchild, as the account holder, can open and manage their Lisa but it’s possible to gift money to an account holder to pay into their Lifetime ISA.”
LV pointed out that a LISA can be a beneficial way to help younger family members save for a first home the Government will add a 25 percent bonus to deposits of up to £4,000 a year.
The introduction of the residence nil rate band in 2017 softened the blows somewhat as it potentially allows the main family residence to pass free of IHT up to £1million but many people are still considering their options when it comes to reducing their potential tax bill.
Brian Byrnes, Head of Personal Finance at Moneybox explained that it is imperative that the primary focus is on making sure retirees have enough to live on before reducing a potential IHT bill is considered.
She said to Express.co.uk: “Running out of money in your 80s and 90s because you generously gifted away assets earlier in life is not an outcome any of us would wish for.
“Once this is definitely covered, then there are steps that can be taken to reduce an IHT bill with careful planning and advice.
“One step for grandparents to reduce a potential inheritance tax bill is by gifting up to £3,000 a year to their children or grandchildren. This can be used to fill ISAs, Junior ISAs, or even Junior pensions where grandchildren can still benefit from tax relief!
“There are also further gifting allowances around weddings for both children and grandchildren which are worth investigating.”
Britons are encouraged to speak to a financial advisor to ensure their money is as tax efficient as possible.