With the base rate rising, many people are turning to parents as they a worried about not being able to afford rising bills, and an expert has explained what people should be aware of.
One expert has explained what people should be aware of.
On BBC Money Box, Keith sent an email as he was worried his children’s rise in monthly mortgage payments.
His two children are facing massive monthly increases and he wants to help them using the proceeds from selling his house.
Sarah Coles, head of personal finance at Hargreaves Lansdown explained the gifting rules and any implications Keith may face.
Ms Coles warned people of the gifting allowances each year. People have a certain amount they can gift each year tax free.
This is £3,000; however, people can use their allowance from the previous year which means they can give a total of £6,000.
Ms Coles said: “If you’re giving any more than that it becomes a Potential Exempt Transfer (PET).
“This means for the next seven years; you’re still accounted as owning it.
“So, if you live for seven years, it moves out of your estate and there’s no inheritance tax issues to worry about.
“But if you were to die during that time, at least some of that money would come back into your estate and you might be subject to inheritance tax.
“It is worth knowing a little about how much you need in your estate to fall foul of IHT at all.
“In some cases, you can £1million and not fall foul at all so it’s definitely worth having a look at the sums and seeing if it would be an issue for you.”
With the Bank of England hiking UK interest rates to the highest level since 2008 and the average two-year fixed rate mortgage now over six percent, many people will be turning to parents for help with paying their mortgage and other bills.
Research from the Saltus Wealth Index showed that 79 percent of parents are now stepping in to financially support their adult children with everyday costs, of those, one in four are helping with mortgage payments specifically.
The average rate for a two-year fixed deal has recently surpassed six percent this month which pushed the average repayment on a 25-year £200,000 mortgage up £383.50 in just two years.
Over a two-year period, that amounts to an extra cost of £9,204; many households are struggling to cover that extra cost and are increasingly turning to their parents to help.
Ms Coles urged parents to understand the potential inheritance tax implications of gifting large amounts of money each year.
Inheritance tax is charged at 40 percent on anything above the standard nil-rate band – which is £325,000 per individual.
If the residence nil rate band isn’t going to cover the estate being passed on, people may consider gifting before they die.