GRANDPARENTS and parents would give more money to their families if they thought they could do it without paying a tax bill. But because they do not understand inheritance tax rules, they hang onto their wealth even if their children and grandchildren are struggling financially, a new survey has found.
Almost half (44 per cent) of UK parents and over a third (35 per cent) of grandparents would gift more money to children while alive if they were able to do so tax-free.
On average people believe they can give away £1,575 a year without falling foul of the taxman.
In fact, they can gift as much as £3,000 a year without incurring IHT.
However only one in 10 of the 4,000 survey respondents knew how much cash they could handover tax-free.
Tax experts said leaving a ‘living legacy’ could become more popular if people had greater awareness of IHT limits.
Forty per cent of people do not feel confident they understand rules around gifting, with grandmas and mothers feeling most bewildered – 47 per cent of women v 30 per cent of men.
Liz Alley, head of financial planning operations at wealth managers Brewin Dolphin, said: “Inheritance tax can be incredibly confusing, so it’s not surprising to hear that many people are unsure how much they can gift each year.
“It’s music to my ears that the Chancellor recently wrote to the Office of Tax Simplification for a review of inheritance tax to ensure the system is “fit for purpose”.
“It’s clear from our research and from speaking to our clients that the system needs looking at.
“However, we’d also like to see the annual gifting allowance increased.
It has remained at £3,000 a year since the early 1980s and we believe that if this was increased we would see more families pass wealth down through the generations.
“Not only will this give younger people the financial leg up in life that so many need, but it would also help older generations from an inheritance tax perspective.”
Tips to parents and grandparents wanting to financially help out the younger generation this year:
- Take advantage of the annual gifting allowance of £3,000 a year.
- Gift money for big life events such as marriage which qualifies for a tax-free £5,000 from parents while grandparents can give £2,500.
- Contribute to Junior ISAs (JISAs) which is tax-free for the giver and the receiver.
