The definition of “Legacy” is something that is passed on. Legacy can take different forms, it may be of one’s faith, ethics and core values.
Legacy for the purpose of financial services means passing on monetary benefits or your assets. It is typical that most people’s initial thoughts move to passing on wealth to their estate or beneficiaries after death. This is contrary to what we are now seeing in the adviser market. It is now typical of parents/ grandparents to gift money, either as a one off cash advance, or a regular payment to help cover childcare cost, school fees funding, deposit for a first property or paying off debts which could make a world of difference to your loved ones.
Rules on gifting
inheritance Tax may have to be paid after your death on some gifts you’ve given.
Gifts given less than 7 years before you die may be taxed depending on:
- who you give the gift to and their relationship to you
- the value of the gift
- when the gift was given
Gifts can include – Money, Jewellery, antiques, house, land, stock and shares, any money you lose when you sell something for less than it’s worth. For example, if you sell your house to your child for less than its market value, the difference in value counts as a gift.
Your estate is all your money, property and possessions left when you die. The value of your estate will be used to work out if Inheritance Tax needs to be paid.
There are several allowances available in the UK that let you gift, without incurring Inheritance Tax.
- Annual Exemption
You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate.
That can go to a single individual or split between several people. The rules allow you to utilise any unused annual exemption forward to the next tax year – but only for one tax year. (tax year runs from 6 April to 5 April the following year)
- Small gift allowance
Gifting up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person (this could be for Birthday or Christmas gifts you give from your regular income are exempt from Inheritance Tax)
- Gifts for weddings or civil partnerships
Each tax year, you can give a tax-free gift to someone who is getting married or starting a civil partnership. The maximum of
- £5,000 to a child
- £2,500 to a grandchild or great-grandchild
- £1,000 to any other person
If you’re giving gifts to the same person, you can combine a wedding gift allowance with any other allowance, except for the small gift allowance.
- If you make regular payments
The rules allow you to make regular payments to another person, for example to help with their living costs. There’s no limit to how much you can give tax free, as long as:
- you can afford the payments after meeting your usual living costs
- you pay from your regular monthly income.
These are known as ‘normal expenditure out of income’. They can include:
- Help with paying rent for your child
- paying into a savings account for a child under 18
- giving financial support to an elderly relative
If you’re giving gifts to the same person, you can combine ‘normal expenditure out of income’ with any other allowance, except for the small gift allowance.
For more information, speak to one of our consultants or visit How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts – GOV.UK (www.gov.uk)
