IHT confusion risks gifting tax trap – Openwork

Parents and grandparents in the UK are risking tax bills by helping out their family financially, according to new research from Openwork.

A study by the financial advice and investment network has found that around one in five adults (20%) – the equivalent of 6.3 million people – say they have given gifts of £3,000 or more to family without declaring it to HMRC.

The findings were based on a study among 1,280 UK adults and included 760 parents and grandparents.

Inheritance Tax (IHT) rules mean gifts up to the total of £3,000 can be given away each tax year and count as an annual exemption. However, gifts worth more than £3,000 can be added to the value of someone’s estate if they’re given up to seven years before death or mean tax bills for the people receiving the gift.

Openwork suggested the IHT risk is becoming a major issue as the growing importance of the “Bank of Mum and Dad and Gran and Grandad” in the housing market highlights the demand for more intergenerational gifting.

Recent data from Llloyds Banking Group showed that average first-time buyer deposits increased by £10,000 last year to £57,278, and as high as £130,357 in London, piling the pressure on first-time buyers and any family members helping them with gifts.

Openwork’s study found that 46% of parents and grandparents are unaware that they could face a tax bill if they give money to children and grandchildren, while 38% did not know there were any potential tax risks from helping out families financially.

The study also indicated confusion among those who were aware there is a possible tax implication – with 80% suggesting that they find the rules “complicated”.

“It is natural for families to want to help each other financially when they can and it’s becoming increasingly important given rising property prices and the financial impact of COVID-19,” commented Openwork chief commercial officer, Mike Morrow.

“Unfortunately, it’s not that simple providing financial help and the Bank of Mum and Dad and Gran and Grandad need to ensure they are not opening themselves up to a tax bill or even possibly landing their relatives with tax issues.

“Professional financial advisers can help people with IHT planning and how to protect inheritances. They will provide support on how to navigate the potential pitfalls and ensure that everyone including HMRC receives what they are expecting and nobody is left with a surprise bill.”

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