New research suggests that one in ten British grandparents have ‘gifted’ a lump sum to their grandchildren, but that many could be overlooking the Inheritance Tax (IHT) implications of such gifts.
The study, which was carried out by insurer OneFamily, found that so-called millennials are now more likely to receive financial gifts from their grandparents than from their parents.
More than half of grandparents quizzed as part of the survey said that their main reason for gifting money to their grandchildren was to help them to get on the property ladder.
The next most popular reason cited by respondents was to help youngsters to pay off debts, such as student loans.
According to the research, the average grandparent has gifted approximately £15,000 to their grandchildren – which, if gifted in one go, could potentially be subject to IHT.
Under existing IHT rules, an individual can gift up to £3,000 a year free of IHT. However, this tax-free amount increases to £6,000 if no gift was made during the previous financial year.
This effectively means that a married couple gifting to their grandchildren for the first time can donate a maximum of £12,000 in the first year tax-free, followed by £6,000 the following year.
Any gifts that breach the tax-free threshold will be deemed ‘potentially exempt transfers’ – which means that they will be liable for IHT if the donor dies within seven years of making the gift.
Under these circumstances, IHT is calculated using a ‘sliding scale’ of tax if the donor’s overall estate exceeds the existing IHT threshold or ‘nil rate band’ of £325,000 – which in some cases can be increased to £425,000 if an individual wishes to pass down their own property directly to their grandchildren in their Will.
The intricacies of IHT are complex and confusing. Britons are advised to seek the advice of a specialist solicitor, who can undertake an assessment of their IHT circumstances and, where applicable, advise on appropriate tax-saving measures, which can often be implemented into a Will.