While this may have been a while ago, the former housing minister suggested in 2016 that if parents left their houses to their grandchildren (rather than their children) in their wills, inequality between the so-called baby boomers and the younger generation might be reduced. Given the increased possibilities for older generations to accumulate wealth, including more affordable property costs, final salary pensions and student assistance. This idea is still relevant today.
What can I do to share wealth with younger family members?
Lifetime gifting
It may be something you’re already doing to give gifts to your children for the benefit of your grandchildren. Both an Inheritance tax and a long-term provision prospective must be considered when making large gifts outright or using trusts.
It’s critical to keep in mind that care costs are high, and the amount of time spent in care is constantly rising. This implies that if you want to offer your younger generation future gifts, you’ll need to maintain enough money set aside to pay for a care home of your choice or for adequate care at home.
Gifts out of surplus income
If you have more money than you need to maintain your regular standard of living, consider making gifts on a regular basis with your excess income. A means of avoiding the accumulation of wealth in your estate is to give consistent presents out of overage income. These gifts should be tax-free (IHT) as a result. If your earnings requirements alter, you may halt the presents at any moment.
Can I gift my house and still live there?
There may be a lot of equity in your house, but any equity gifts are difficult to implement in a way that is both IHT and cost-effective. Any gift of your home, whether you live in it or not and pay market rent, will most certainly be ineffective for IHT planning. It’s value is almost always included in any care payment evaluation to determine the amount of local authority funding you are eligible for.
If you choose to downsize, it’s simpler to pool equity. This is because any capital gift made from the sale profits will be IHT-free if you survive it by seven years. Alternatively, a mortgage counselor may be able to suggest how your equity might be utilized to support a younger family member in obtaining mortgage financing.
Read the guide on gifting your house.
How can I protect beneficiaries?
You may be worried that your children or grandkids would misuse any present you give them. A trust can guarantee that a part of asset protection is upheld while the assets are being managed by trustees on behalf of your kids and grandchildren. It’s also conceivable to pay the whole amount owing straight to, for example, your child’s school or a grandchild’s tuition.
If you’re considering skipping a generation to leave property to your grandchildren, talk it over with your children first. This is because dissatisfied descendants who believe they have not received adequate financial aid from your estate may sue against it. If your children are aware of your planning, this can save you a lot of money in inheritance tax. It will not be subject to double taxation.
Keep in mind that your children may appear to have adequate funds and assets now, but unforeseen events like divorce or company failure can wreak havoc. Putting assets into a discretionary trust in your Will is an alternative, and it’s frequently a preferred option. This can help you avoid crystal ball gazing and enable you to choose how your inheritance will be dispensed. For example, a distribution weighted toward your grandchildren might not be the ideal choice if you pass away. Our attorneys work hard to create Wills in such a way that they are sustainable and adaptable.
Property closely inherited by direct descendants and tax
The nil rate band for residential property (RNRB) was created in 2017. It’s a separate IHT exemption for people who give property to their children and/or grandchildren. It may provide an extra £350,000 tax-free limit, in addition to the current £325,000 nil rate band, for a married couple. If your estate or combined estate is worth about £2 million, you may strengthen your Will by including planning to ensure that you don’t miss out on this benefit.
What if I inherit from my own parents and want to pass the money to my children?
If you inherit money from your parents and believe it would be better spent on your children, you may want to change their Will via a deed of variation. You can do so by diverting the inheritance entirely or into a discretionary trust. This is a popular tax planning strategy since IHT will treat your parent’s gift as having been given for that purpose. If you want to keep access to the assets in the future but also ensure that they are not included in your IHT estate, a discretionary trust is the way to go. When you pass away, no IHT tax will be levied on the trust assets and a fund may be established at the trustees discretion for everyone in the family.