When a young couple is setting up their first home together it is often thanks to a financial handout from a relative helping them to get on the property ladder. However, it is really important for those giving the money to seek independent legal advice in respect of their estates and the potential tax issues that could arise from such generosity.

When gifting a sum of money over your gift allowance for the tax year (currently £3,000) these gifts will still count as part of your estate for seven years after you have transferred them to someone else, and could be subject to Inheritance Tax if you should die during that period. The technical description for such payments is Potentially Exempt Transfers (PETs). The recipient of such a gift will be responsible for any Inheritance Tax due.

Another consideration if gifting towards a property is that there may be other tax implications if you wish to live in the property. HMRC will see this as a gift with reservation of benefit (a GROB) unless you pay a market rent, meaning that the value of the gift will fall back in to your estate for Inheritance Tax purposes.

There are other gifts that can be given to family or friends (or indeed anyone who isn’t your spouse or civil partner) within your allowance such a maximum of £250 per year to any one person, a wedding gift of up to £5,000 for your child and their partner, a wedding gift of up to £2,500 for your grandchild and their partner and a wedding gift of up to £1,000 for anyone else.

Money can also be paid to someone from income rather than from savings or investments and if these gifts are to be made free of Inheritance Tax successfully in this way, there are strict rules about how these should be made and accurate records of any money given away have to be maintained.

So, when proposing to ‘help’ family members out it is really important to consider any implications by seeking legal advice.  Members of our Private Client department are happy to help.

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