Gifts from the bank of Mum and Dad and Grandparent over £3,000 could be subject to tax and almost half of them are unaware of this.
Almost half – 46 per cent – of parent and grandparents do not know they could face an inheritance tax bill if they give money to children and grandchildren to help with something like a deposit for a house, according to data from financial advisor network Openwork.
It added 38 per cent did not know there were any potential tax risks from helping families financially.
And of those who were aware there were tax implications, 80 per cent said they found the rules complicated.
Around one in five, or 20 per cent – around 6.3 million people – say they have given gifts of £3,000 or more to family without declaring it to HMRC.
Inheritance tax rules mean gifts of up to £3,000 can be given away each tax year and count as an annual exemption. But gifts worth more than £3,000 can be added to the value of someone’s estate if they’re given up to seven years before death or mean tax bills for the people receiving the gift.
Chancellor Rishi Sunak may look to tighten up these rules in his Budget on 3 March, as he bids to bolster the public finances.
An increasingly common gift is to contribute to a younger family member’s deposit to gain a mortgage.
The average first-time buyer deposits increased by £10,000 last year to £57,278 and as high as £130,357, according to the Halifax House Price Index in December.
Openwork chief commercial officer Mike Morrow says: “It is natural for families to want to help each other financially when they can and it’s becoming increasingly important given rising property prices and the financial impact of Covid-19.
“Unfortunately, it’s not that simple providing financial help and the Bank of Mum and Dad and Gran and Grandad need to ensure they are not opening themselves up to a tax bill or even possibly landing their relatives with tax issues.
“Professional financial advisers can help people with IHT planning and how to protect inheritances. They will provide support on how to navigate the potential pitfalls and ensure that everyone including HMRC receives what they are expecting and nobody is left with a surprise bill.”