insideKENT Magazine Issue 62 - May 2017 | Page 171

TAX
SAVING WHICH SKIPS
A GENERATION
BY RICK SCHOFIELD, TAX PARTNER, KENT REGION
THEY SAY THAT MOST THINGS SKIP A GENERATION AND SAVING IS
NO DIFFERENT. WITH A NEW TAX YEAR SPREADING BEFORE US, NOW
IS THE BEST TIME TO BE MAKING PLANS FOR THE FUTURE.
Passing on wealth can be difficult to achieve
without the taxman involved, but whether we
like it or not, when we die, the Government
is one of the biggest beneficiaries to our estate.
For grandparents in particular, navigating
any tax-efficient ways to pass on wealth to
family is very important, not only to ensure
financial security for any children, but for
grandchildren too.
Whether it’s to help them with a property
purchase, or to put towards university fees,
plenty of parents and grandparents like to
squirrel some money away for children. But,
somewhere the taxman could get involved –
particularly if you are giving away a large sum.
CHILD’S PERSONAL ALLOWANCE
Even though your grandchildren may be too
young to earn money from an employer, they
still have their own personal allowance, which
for 2017/18 is £11,500 providing their income
is below £100,000. Such allowances can be
used against income generated by gifts from
persons other than parents – i.e. grandparents.
Children can earn up to £100 in interest
from money given to them by their parents
and anything over that amount is taxable on
the parent. However, this rule does not apply
to grandparents. Other relatives and friends
are also exempt from this £100 rule.
BEWARE THE IHT
Grandparents can choose to gift money, such
as a lump sum towards a deposit on a property.
But to avoid an unexpected Inheritance Tax
(IHT) bill for your grandchildren, then you
should remember these three things:
• Each of us have an annual IHT allowance
of £3,000, so you can give money away to
your grandchildren (or your children)
without needing to worry about paying tax.
You can also carry forward your IHT
allowance from the previous year.
• If you gift more than £3,000, and you are
not carrying forward the previous years’
allowance, you must live for 7 years after
giving that gift otherwise it will be subject
to IHT payable by the child. house to your child for less than it is worth,
the difference in value counts as a gift
• You can give smaller sums of up to £250
a year to as many people as you like, but
you cannot combine this with another
allowance. • However for it to be a gift out of income
the gift needs to be of cash or an asset
specifically purchased as a gift – you cannot
gift an asset that has been long held.
Remember, the £3,000 allowance is allocated
per gift-giver and not per child, so this
allowance must be split accordingly.
Consideration may even need to be given to
your own children, as well as your
grandchildren.
It is worth bearing in mind that you can
give extra sums for events such as weddings
and civil partnerships. So, if your grandchild
was to get married, grandparents and great-
grandparents can each give cash or gifts worth
£2,500 in addition to the £3,000 gift allowance
and no further tax will be payable.
RECOGNISING A GIFT
If you are still working or have other income,
you have the option to pay a regular, small
sum to your children or grandchildren out of
your income and it will not be subject to
additional tax. However, this must not be from
your savings, but must be part of your monthly
outgoings and it must not affect the quality
or standard of your living – so you must be
able to easily afford these payments.
If you choose to gift smaller amounts to
your grandchildren, then HMRC recognises
such genuine gifts out of normal income,
such as birthday or Christmas presents, as
exempted gifts. This means there is no
inheritance tax (IHT) to pay, as long as they
are small gifts which do not affect your
standard of living, regardless of your
relationship with the receiver.
NRB
It might also be worth considering property
within your estate. There is currently a nil rate
band (NRB) on your estate of £325,000 per
person (£650,000 for a married couple).
However, from the 6 April 2017, each person’s
band increased to a maximum of £425,000
thanks to the new Residence Nil Rate Band
(RNRB) but the increase is limited to the value
of your home. If your home is worth £325,000
you will have no increase, if it is worth over
£425,000 you will get the full increase. This
extra home allowance will eventually increase
from £100,000 to £175,000 in 2020.
It is important therefore to review your
estate with these changes in mind.
If you are looking to help make the most
out of saving for your grandchildren, and pick
up some tax advantages on the way, then
Wilkins Kennedy can help. Contact us at our
offices in Ashford, Canterbury, Maidstone,
Orpington and Sandwich to find out more
information.
Local offices:
Ashford: 01233 629 255 / Canterbury: 01227 454 861
Maidstone: 01622 690 666 / Orpington: 01689 827 505
Sandwich: 01304 249 997
What sort of gifts are included under this
exemption? HMRC define ‘a gift’ as:
• Anything that has a value, such as money,
property or possessions
• A loss in value when something’s
transferred, for example, if you sell your
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