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Inheritance Tax gifting limit may be lifted for parents helping children buy property

It has recently been reported that the Chancellor has ordered a review into Inheritance Tax by the Office for Tax Simplification. The Chancellor specifically referred to a review of the current gift rules, therefore the review could lead to changes of the limit at which gifts can be made without potentially attracting Inheritance Tax liability.

As the law currently stands, it can be very complex for those wishing to make gifts to their loved ones, for example to assist them in getting onto the property ladder.  
Individuals are able to make gifts of up to £3,000 per year before they may potentially attract Inheritance Tax liability. The first time that they use this allowance, as they haven’t used the previous year’s allowance, they can potentially gift £6,000.

If gifts are made over this limit, it would be considered a “potentially exempt transfer”. This means that the money will not immediately attract a tax liability- rather, if the individual who made the gift lives for more than 7 years after the gift, then it will be exempt from Inheritance Tax. If they die within the 7 year period, then it would no longer be exempt, and would become chargeable. Inheritance tax is currently 40% over any estate above £325,000, therefore gifts could attract a substantial tax liability.

At the time this limit was set in the early eighties, the sum of £3,000 could have greatly assisted loved ones in getting onto the property ladder. This amount, however, would now fall short of the deposit required for those looking to become property owners. Under the current Inheritance Tax rules, those who provide financial assistance to help loved ones buy property could potentially face an Inheritance Tax liability as a result of this assistance.

Research from Legal and General for the year 2017 suggested that friends and family would give or lend £6.5 billion to help home buyers that year. 62% of under 35s confirmed receiving financial help from friends or family when they purchased their home and 52% of prospective buyers under 35 anticipated having to receive assistance to make any purchase in the future. It would therefore clearly be of benefit if the current rules were to be revised, allowing for gifts to be made in respect of deposits and allowing younger generations the opportunity to become home owners without the person making the gift risking their estate becoming subject to Inheritance Tax in relation to the same.

Given the current statistics regarding financial assistance required by first time purchasers, and the very early stage of a Review, this is likely to be an ongoing concern for some time. We would always recommend that individuals obtain expert advice with regard to their estate, and obtain advice which is tailored to their needs to avoid any potential legal pitfalls.

If you are concerned that your estate may be subject to Inheritance Tax, or you wish to receive estate planning advice, you can get in touch with one of our specialist solicitors on 0800 089 1331 who will be able to provide you with further information. Our solicitors provide clear, detailed advice, and can allow you peace of mind that you have planned for the future.  

Blog by Amy Wardrop, Private Client Solicitor

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