We would all like to help our family get on to the property ladder – preferably without unnecessarily shelling out to the taxman.
In the first three instalments of our series we looked at the pros and cons of equity release, guaranteed mortgages and placing funds in trusts.
Last week the Office for Budget Responsibility cancelled its prediction of house price falls next year. Good news for sellers, less so for cash-strapped buyers.
Months of record cheap borrowing is also coming to an end, with lenders pulling their best deals ahead of a widely anticipated interest rate rise by the Bank of England this week.
The combination of sustained house price growth and more expensive debt could land a significant blow to affordability and buying power, especially among first-time buyers.
It is no surprise, therefore, that the Bank of Mum and Dad will have handed out a record £9.8 billion to their children in 2021.
Gifting property funds to a loved one can be a fruitful reward of a lifetime of hard work. But, it is also fraught with pitfalls which could risk unnecessarily gifting cash to the taxman.
The seven-year rule
Helping a loved one onto the ladder also requires a morbid reality check. Gifting is subject to the “seven-year rule”, whereby a gift made by a parent or grandparent will be free of inheritance tax if it is made seven years or more before their death.
Richard Jameson, of the accountancy firm Saffery Champness, said: “Gifting money directly to children and grandchildren can be a potentially tax-efficient way to help them put a deposit on a first home or help secure a mortgage. But careful planning is needed.
“There is no lifetime limit to how much can be given away. So, in theory, regardless of the amount of funds that a child or grandchild needs to purchase their first home, it can be provided by family members, either in instalments or all at once, without incurring an inheritance tax bill and subject to the seven-year survivorship rule.”
Each individual is taxed at a rate of 40pc on all their assets above a threshold £325,000. There is an additional allowance related to the family home. If the nil-rate band is used up and a donor gifts above the allowance, and dies within seven years, IHT is due on a sliding scale (see box, below).
