Bank of Mum and Dad
There might be a run on the Bank of Mum and Dad if a new survey is right. The pollsters YouGov interviewed more than 2300 adults ago and concluded that up to a million households are not paying their heating, telephone or council tax bills so that they can afford the growing cost of their mortgage. Four interest rate rises mean that a typical monthly payment has grown by more than £100 since this time last year leaving many younger adults feeling the pinch.
If you want to help younger relatives – either by paying bills or contributing towards that mortgage deposit – it is important to make sure that you do not run the risk of boosting their Inheritance Tax bill. If you give money away and survive seven years, then it will not count as part of your estate. So rule one is stay healthy!
But no-one is immortal and anything given away in the seven years before death may count as part of your estate when Inheritance Tax is worked out. So it is important to make use of your exemptions – amounts of money that do not count even if you die tomorrow.
You can give away up to £3000 a year in total without it counting at all. Husbands and wives (or civil partners) can give away that much each and if you gave nothing away last year then you can bring that £3000 forward. In those circumstances a couple can give away £12,000 without it counting for Inheritance Tax. You can also give up to £5000 as a wedding gift to your own child or up to £2500 to a grand (or great-grand) child. You can also give up to £250 each to any number of people – but not to anyone who benefits from the other two exemptions.
If you want to give a regular amount to a relative then that will be exempt from Inheritance Tax as long as it does not reduce your lifestyle or standard of living.
Whatever you give to your children or younger relatives you should write a note setting out each gift and what exemption it comes under. Sign and date the note and leave it with your will. That will make job of your executors a lot easier.
Another rise in interest rates is expected soon – perhaps this week, perhaps in August. And house prices are still heading up. The Bank of Mum and Dad is in for a long hot summer.
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