As parents, we often want to help our children get a head start in life, and one way to do this is by giving them financial assistance to help them buy their first home. However, it’s important to consider the potential tax implications of such gifts and seek independent legal advice to ensure that our estates are protected.

Potentially Exempt Transfers (PETs) and Inheritance Tax

When giving a sum of money over your gift allowance for the tax year (currently £3,000), these gifts will still count as part of your estate for seven years after you have transferred them to someone else. If you die during that period, the gift may be subject to Inheritance Tax, and the recipient will be responsible for any tax due. This is why it’s important to seek legal advice before making such gifts.

Gifting Towards a Property

If you’re gifting money towards a property, there may be other tax implications to consider. If you wish to live in the property, HMRC will view this as a gift with reservation of benefit (a GROB) unless you pay a market rent. This means that the value of the gift will fall back into your estate for Inheritance Tax purposes.

Other Gifts Within Your Allowance

There are other gifts that can be given to family or friends within your allowance, such as a maximum of £250 per year to any one person, a wedding gift of up to £5,000 for your child and their partner, a wedding gift of up to £2,500 for your grandchild and their partner, and a wedding gift of up to £1,000 for anyone else.

Payments from Income

Money can also be paid to someone from income rather than from savings or investments. If you wish to make these gifts free of Inheritance Tax, there are strict rules about how they should be made, and accurate records of any money given away must be maintained.

Seeking Legal Advice

In conclusion, when proposing to help family members buy their first home, it’s important to consider any potential tax implications and seek independent legal advice. Members of our Private Client department are happy to help and can provide guidance on how to give gifts in a tax-efficient manner. By taking these steps, you can ensure that your children receive the financial assistance they need without any unintended consequences for your estate.

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