17 February 2018
Many older generations are upset to see children and grandchildren struggling financially so it’s only natural that they want to step in and lend a hand. However, one in three (32%) people say they don’t know how much they can gift each year without incurring inheritance tax (IHT), according to UK wealth manager Brewin Dolphin1.
A poll of more than 4,000 UK adults shows that on average people believe they can gift £1,575 a year without being left with a tax bill, but in reality people can gift £3,000 a year without incurring IHT. In fact, only one in ten (12%) respondents correctly stated that they can give away around £3,000 a year.
The research suggests that UK adults would be more inclined to pass on their wealth if they could gift more money tax-free. For instance, more than two fifths (44%) of UK parents and over a third (35%) of grandparents would gift more money to children while alive if they were able to do so tax-free.
Leaving living legacies may become more popular if people had greater awareness of IHT limits, as four out of ten (40%) people don’t feel confident that they understand rules around gifting, with women feeling the least confident (47% women v 30% men).
Helping family members reach life milestones is something that is important to many parents and grandparents, and gifting money so the younger generations can achieve their goals has become more common over recent years. For instance, almost one in four (23%) people gifted more money to family in 2017 than in 20162. Perhaps this trend is only set to continue as millennials continue their plight to get on the property ladder, pay tuition fees and/or get out of debt.
Liz Alley, Head of Financial Planning Operations at Brewin Dolphin, said: “Inheritance tax can be incredibly confusing, so it’s not surprising to hear that many people are unsure how much they can gift each year. It is music to my ears that the Chancellor recently wrote to the Office of Tax Simplification for a review of inheritance tax to ensure the system is “fit for purpose”. It’s clear from our research and from speaking to our clients that the system needs looking at.
“However, we’d also like to see the annual gifting allowance increased. It has remained at £3,000 a year since the early 1980s and we believe that if this was increased we would see more families pass wealth down through the generations. Not only will this give younger people the financial leg up in life that so many need, but it would also help older generations from an inheritance tax perspective.”
Brewin Dolphin is offering the following tips to parents and grandparents wanting to financially help younger families this year:
- Take advantage of the annual gifting allowance
You can give away £3,000 worth of gifts each tax year (6 April to 5 April) and this will not be subject to IHT. You can also carry any unused gifting allowance (or annual exemption) forward to the next year – for one year only. In other words, if you didn’t use your annual exemption in 2017 then you can gift £6,000 this year.
- Remember you can gift money for big life events
You can gift money to children for certain life events. For instance, if children are getting married this year then parents can gift £5,000 to each child as a wedding gift, while grandparents can gift £2,500.
- Contribute to Junior ISAs (JISAs)
The £3,000 annual gifting allowance can be used to fund a Junior ISA, the limit is currently £4,128 for the tax year 2017/18 and will increase to £4,260 in 2018/19. JISAs are a great tax-efficient way to save for children or grandchildren – especially if you start contributing to them early on in a child’s life. The long-term nature of JISAs also makes them ideal for saving in stocks and shares. For instance, had JISAs existed for the last 18 years, an annual saving of £4,128 into a Junior Cash ISA would have grown to £120,972.703 by the time the child reached 18 years old. However, if you saved the same amount of money into a Stocks & Shares JISA over the same period, this would have grown to £161,342.414.
PRESS INFORMATION
For further information, please contact:
Richard Janes richard.janes@brewin.co.uk Tel. +44 (0) 20 3201 3343
Sian Robertson: Sian.Robertson@brewin.co.uk / Tel: (0) 20 3201 3026
Payal Nair payal.nair@brewin.co.uk Tel: +44 (0) 20 3201 3342
FTI Consulting: brewindolphinconsumer@fticonsulting.com / Tel: (0)20 33195642
NOTES TO EDITORS
1 Opinium surveyed 4,012 UK adults online between 11th and 17th August 2017.
2 Opinium surveyed 3,500 UK adults online between 8th and 13th December 2017.
3 Assumes 2.5% return. Based on 3% Jisa allowance escalation.
4 Market data source Reuters Data-stream. Assumes 1.77% charges, Based on 3% Jisa allowance escalation.
- This information is for illustrative purposes only and is not intended as investment advice
- The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness
- The value of investments can fall and you may get back less than you invested.
- Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
- The opinions expressed are not necessarily those of Brewin Dolphin Ltd.
About Brewin Dolphin
Brewin Dolphin is a UK FTSE 250 leading provider of discretionary wealth management. With £41.5* billion in funds under management, it offers award-winning personalised wealth management services that meet the varied needs of over 80,000 account holders, including individuals, charities and pension funds.
We give clients security and wellbeing by helping them to protect and grow their wealth, in order to enrich their lives by achieving their goals and aspirations. Our services range from bespoke, discretionary investment management to retirement planning and tax-efficient investing. Our focus on discretionary investment management has led to significant growth in client funds and we now manage £35.3* billion on a discretionary basis. The value of investments and any income from them can fall, and you may get back less than invested.
In line with the premium we place on personal relationships, we’ve built a network of 29 offices across the UK, Jersey and Dublin, staffed by qualified investment managers and financial planners. We are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients’ needs at the core.
*as of 31 December 2017