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Gifting Money: Inheritance Tax Tips For Grandparents

It's easier than you think ...



As we near the end of the tax year, I have noticed not just a flurry of snow but a flurry of clients wanting to know if gifting money to their grandchildren will save them tax ...

You'll be surprised at how easy gifting money can be with a little planning!

You'll be surprised at how easy gifting money can be with a little planning!

copyright: dobledphoto / 123rf stock photo

Well, the short answer is yes, and probably a bit more than you first think. So here is an example:

Each grandparent may make annual gifts out of capital of £3,000 in total. If they use £2,880 of this to pay into a pension plan for a grandchild, then HM Revenue & Customs will top this up with a tax rebate of £720.

If the grandparents are going to leave an estate subject to inheritance tax, then this gift will come out of the estate in its entirety if it is made 7 years prior to death.

The potential inheritance tax saving is £1,152, and so the net cost of getting a pension contribution of £3,600 (£2,880+£720) is £1,728 (£2,880 less £1,152) which is a return of 108%!

Not every bit of tax planning will generate such returns but here are a few more inheritance tax tips:

  • If the £3,000 annual capital gift allowance wasn’t used in 2016/17, it may be brought forward to 2017/18 to give an allowance of £6000.

  • Make small gifts of up to £250 to any number of individuals, but not those who have received the £3,000 annual gift.

  • If there is a family wedding, a grandparent may make a wedding gift of £2,500 to a grandchild (£5,000 if it was a direct son or daughter).

  • Make regular gifts to family beneficiaries out of normal income. Do remember to document them, but it avoids double taxation, i.e. that of income tax on the income receipt and then inheritance tax on the amount at death.

Of course, gifting is not for everyone as they may not have surplus capital or income, but in order to plan, I would recommend consulting with a financial planner.

Here at Essendon, we know some great financial planners including, of course, Essendon Financial Planning based from our offices. Such planners will be able to properly assess what is needed and, if appropriate, may investigate inheritance tax shelter investments that are appropriate for you.

"Would you like to know more?"

If you want me to put you in touch with a financial planner who can help you with gifting money, then do call me on 01908 774320 or click here to ping me an email and let's see how I can help you.

Until next time ...

Business Godparent

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More about Roger Eddowes ...

Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.

Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.