An expert has warned that more and more people will be forced to turn to the ‘Bank of Mum and Dad’, as the cost of living crisis continues.
Speaking in the Daily Record, lawyer Grant Jonson said increasing numbers of parents were going to feel obliged to hand over money to their children. This, he added, would have implications in terms of inheritance tax as lump sums can count towards the threshold if parents die within seven years of making the gift.
In the past, the so-called Bank of Mum and Dad has more been linked with parents helping their adult offspring to get on the property ladder, especially as house prices have spiralled. But rapidly increasing living costs combined with a parent’s instinctive need to help their children could see more donations of money.
Potential inheritance tax implications
But those wishing to give their children lump sums should seek expert advice, Mr Johnson of the law firm Lindsays, warned, if they wanted to avoid potential inheritance tax implications.
Under Her Majesty’s Revenues and Customs (HMRC) rules, cash or items of up to £3,000 can be given tax-free every year (though the limits are different if the money is intended to be used for weddings).
Gifts of more than £3,000 might be liable for inheritance tax if the parent dies within seven years.
Inflation at record high
Mr Johnson said sometimes parents wanted or needed to give their children money and that this was likely to become more common as bills continue to rise. Inflation, which has hit a 30-year high of 7 percent, has left many Britons struggling to afford food and other essentials.
The lawyer added that if you took the property market alone, it might mean that even more first-time buyers than usual would be reliant on financial support from their families as they would not be able to save much money at all with the costs of daily living increasing by so much.
But such gifts came at cost, which many people didn’t realise when trying to help their children buy homes of their own. If or when people opened the Bank of Mum and Dad, he said, they needed to be aware of inheritance tax rules.
Gifts of value
Many people believed mistakenly that money gifts were “just help with buying a home” and they were the gifts that couldn’t be taxed, but HMRC viewed any gifts as something that had value, and that also included donations towards major house repairs or projects, cars or family treasures.
He expected many more people to fall into this trap, as the numbers of people relying on relatives to help them climb the property ladder grows.
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