If you want to give gifts to your children, it is important to remember that you haven't always got free reign and there are certain restrictions that can limit how much you are able to give in order to avoid inheritance tax
You may also want to give some thought to any repayment or interest terms. The specialists at Equilibrium can provide the guidance you need to ensure you make all of the right decisions when giving gifts to children.
For more information about how we can help you plan your finances and make sure you're doing everything right when giving gifts, contact us today. With offices in Wilmslow and Chester, our team is at hand to help. Call us on 0808 156 1176 or complete our online enquiry form and we will be in touch.
Avoiding inheritance tax
There are no limits on how much you can give to your children, however there are certain limits when it comes to how much you can give free from inheritance tax, once your nil rate band has been utilised. If you live more than seven years after you make a gift then it is exempt from inheritance tax, but if you do not live for more than seven years then it is not.
Inheritance tax is charged at 40% on gifts that are given in the three years prior to your death. In the three to seven years before your death, a sliding scale - called 'taper relief' - is used. For the years between the gift made and your death, the tax paid is as follows:
Less than three years - 40%
Three to four years - 32%
Four to five years - 24%
Five to six years - 16%
Six to seven years - 8%
Seven or more years - 0%
To avoid paying inheritance tax when giving gifts, you have a £3,000 'gift allowance' each year, which is also known as an annual exemption and means that you are able to give away either cash or assets worth up to a total of £3,000 a year. You are able to carry leftover allowance from one year to the next, with a limit of £6,000, but this has to be used in that tax year and cannot be built up over years to be used for a single gift.
With the right financial help, you can make sure you are able to make the most of the allowances available to you, ensuring you are able to pass on as much money to those you love as possible.
Repayments and interest
When giving certain gifts to your children, you may do so without wanting them to ever pay you back. However, in some instances you may give a gift to help your children out at a certain time - if they are looking to buy a house, buy a car or pay for a wedding, for example - and you want them to repay you at a later date. In such circumstances, it is important that you agree terms and conditions, especially in respect to repayments and interest.
Making such arrangements with those closest to you may seem difficult, but they are important to ensure everyone is happy and that nobody loses out in the long run. By speaking to wealth management experts, you can make sure you make the right decisions when giving gifts, and everyone benefits from it as much as possible.
Contact Us Today
We have supported many clients from in and around Manchester and Cheshire. Find out more about how our experts can help you when giving gifts to children by contacting us today. Simply call us on 0808 156 1176 or complete our online enquiry form and we will get back to you as soon as we can.