The importance of gifting wisely

Research shows a rise in parents gifting to their children but the size of the gifts are dwindling. Why the sudden decrease?

A home buyers report conducted by Legal & General found that ‘the bank of mum and dad’ has become a £6.5 billion UK mortgage lender. Although this clearly plays a huge role in the UK housing market, the report goes on to outline that the average gift size is shrinking, reducing by 17% from last year’s contributions. Furthermore, new research from Key, an equity release adviser, shows that 76% of all parents aged 55 and over find gifting rules complicated and are afraid of making an error.

Dean Mirfin, chief officer at Key says that ‘the 
challenge for parents wishing to lend or gift money is to decide which assets are the most appropriate and most tax-efficient for gifting.’ In light of this confusion, we have provided a breakdown of some of the main aspects to consider when gifting to your children.

Be rational

It’s vital to have an honest discussion with your partner and the recipient about what you can reasonably afford to gift without causing yourself any financial hardship. Naturally, everyone wants the best for their children but it’s crucial to be level-headed when it comes to gifting. It’s important that you factor in your own future expenses such as retirement income and potential care costs. Ultimately, be transparent with the person receiving the gift. Discuss the details with them, what you think is fair and what the money is intended for.

Where will the funds come from?

The source of funds for gifts tends to come from property, pension assets and ISAs. It’s important to decipher which will be the most appropriate asset to access. This may require a conversation with a financial adviser to discover which option will be the most efficient for you.

Inheritance tax

You are able to gift as much as you like to your children without the concern of inheritance tax, providing that you don’t pass away within seven years of the transaction. This is known as a ‘potentially exempt transfer’. If you were to pass away during this period, the gift is no longer exempt and will then be subject to tax. The amount of tax payable is dependent on the years between the gift and the passing of the parent. Find out more about inheritance tax and how we could help you here.

Seek financial advice

To avoid any worry or fear of making a mistake, it’s recommended that those looking to make a large gift speak with a financial or legal professional. Gaining financial advice can provide peace of mind that you’re making an informed decision and going about the transaction in the most efficient way possible.     

If you want to discuss potential gifting or have any inheritance tax queries, please give us a call or fill in our contact form to be put in touch with one of our highly experienced financial advisers.

This article is for generic information only and should not be constructed as advice. Please contact us before proceeding with any course of action.