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Inheritance tax: How much money are you able to give to grandchildren without paying HMRC tax | Personal Finance | Finance


The most recent HM Revenue and Customs (HMRC) figures show a record amount of inheritance tax was taken in June. Nevertheless, there are some key ways Britons will pay less.

Although Britons can provide as much money to their family members as they like, it pays to pay attention to the tax implications.

Jenny Holt, managing director for customer savings, and investments at Standard Life said: “Sharing wealth with children and grandchildren can provide a beautiful sense of well-being and joy for people aiming to pass on a part of their savings to relations, often to assist with big expenses resembling weddings or education fees, to repay debt or get on the property ladder.

“Despite the fact that you’ll be able to gift as much of your money to family members as you want, it’s vital to pay attention to the tax implications to avoid unexpected tax charges which reduce the complete good thing about your gift.

“There are a lot of tax-efficient ways you’ll be able to support your family members and being well-informed in regards to the options in your family’s circumstances will put you in the perfect position to profit from your money, and their future.

“Nevertheless, it’s a fancy area, so it’s well value searching for financial advice in your situation.”

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Standard Life’s Jenny Holt outlines suggestions for gifting to children or grandchildren tax-free:

Give frequently – “You may gift as much as £3,000 to anyone in a tax yr, and gift £250 to as many individuals as you would like without paying any inheritance tax (IHT). This may be carried forward one yr but when you don’t use it then, you’ll lose it. So, giving money to your family members frequently may be an efficient approach to minimise the IHT payable in your estate in your death.”

Pay into their ISA – “You may open a Junior ISA (JISA) in your child or save into one in your grandchild’s behalf. Currently, you’ll be able to pay as much as £9,000 in total in a tax yr right into a JISA and that cash may be invested, which supplies a probability for his or her savings to extend over time. They will access the cash once they reach the age of 18 and so they won’t pay any tax on anything they withdraw or pay Capital Gains Tax on any investment growth either. There’s also the choice to support their Lifetime ISA – which may be opened by anyone between the age of 18 and 39 and will help them save for a property or boost their pension savings.”

Think in regards to the advantages of using a trust – “Using a trust means that you can support your grandchildren whilst you’re still around, in addition to offering plenty of tax benefits. As a trustee, you keep a component of control over the funds and the way and once they’re paid, while gifts made to the trust can reduce your estate for IHT. Using a discretionary trust gives grandparents the best flexibility and control, however the taxation is higher and more complex. You must seek Financial Advice when you are considering using a trust to assist you select the proper option in your circumstances.”

Give larger gifts… but concentrate on the seven-year rule – “If you need to gift larger sums to individuals, these won’t be counted for IHT purposes when you live for seven years afterwards. If you happen to don’t live for the complete seven years, the cash you’ve given shall be added to the worth of your estate, eating into your £325,000 threshold.
Remember, you might be unable to set any a part of a tax-free allowance previously inherited from a spouse or partner, or the tax-free allowance (as much as £175,000) related to gifting the family home to children or grandchildren, against these lifetime gifts. If you may have used all the available IHT allowances, the gift shall be taxed at as much as 40%, although the quantity of IHT to be paid could also be reduced based on how most of the seven years have been passed because the gift was made – this reducing scale is referred to as taper relief.”

Nevertheless, people should keep in mind the differences between gifting to a grandchild and gifting to a baby. Some key points to notice:

People can provide gifts value as much as £2,500 in a yr to a grandchild or great-grandchild (on top of your annual exemption) in the event that they’re getting married – but this increases to £5,000 if it is your child.

Grandparents cannot open a JISA for a grandchild – that have to be done by the kid’s parent or legal guardian.

Parents who make a present to an single child under 18 can have the income from the gift taxed as if it were theirs. That is to stop parents attempting to get a tax break through the use of their children’s allowances. This rule doesn’t apply to grandparents or to gifts from parents to their children’s JISAs.

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