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Money gifts which aren’t just for Christmas: pass on wealth now

grandfather granddaughterInheritance planning might not be on your mind right now – or at least until you see old Aunt Agatha dozing off over her sherry on Christmas Day. But actually the festive season is a good time to start thinking about passing on wealth, for both gifters and giftees.

It’s important because there’s plenty of money about to leave behind. Zoopla says the over-65s in UK are sitting on housing wealth of £1.3 trillion. That’s a lot of cash to pass on while avoiding the taxman who will take 40% of it past a certain threshold. (The level varies according to individual circumstances. If you have more than £325,000 to pass on, there may be tax to pay.)

Bequeathing the family home to your kids in one massive lump sum is one sure way to fall into HMRC’s trap. But you may not want to hand over huge amounts to your children at the tender age of 21 when they might blow it inappropriately. Or lose half of it in a divorce. So what can you do?

I’ve spoken to some financial planning experts recently and gleaned some top tips. Michael Martin at Seven Investment Management came up with the neat strategy of giving little and giving often. Done properly, the gifts can be free of inheritance tax with the added benefit that the children get small amounts initially. If the worst happens, these payments can be stopped or suspended until circumstances change.

At Brewin Dolphin, Liz Alley gave me some ideas about how this could be done. First, it’s worth just going over the rules - quickly.

1. Each tax year you can give away £3,000 free of inheritance tax.
2. If the gift is regular, comes out of your income and doesn’t affect your standard of living, any amount can be given away free of tax.
3. You can make big gifts tax-free (called ‘potentially exempt transfers’) if you stay alive for seven years afterwards.
4. You have to totally give away the gift for rule 3 to apply ie you can’t give your house to your child and continue to live in it.

With this in mind, either you or one or your relatives could be getting a nice £3,000 present this Christmas perhaps? And obviously, if you have a lot to bequeath, the sooner you start, the better.

The gift doesn’t have to be just cash. You could think about putting a regular amount in an Isa for your grown-up child or a junior Isa for a grandchild. These accounts have the added benefit of not just tax-saving. If you take the money out, you lose the tax benefits so it’s an incentive not to do so. If you really wanted to lock it away, you could put the money in a pension for a grandchild or child. They won’t be able to touch it until age 55 (currently, although this may change).

So there’s something to think about over the turkey and trimmings. Of course, if you’re completely skinted, none of the above may apply. For the more minted, or those unsure of their future needs and what’s available to pass on, it’s worth consulting a financial adviser. Check our SMM guide here about how to find a reliable one.

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Saturday, 15 December 2018