My parents are reasonably well off, have no mortgage, are both retired and have cash savings earning little or no interest.
We are struggling to find the money for a deposit on a house. If I asked for a part of my inheritance now what would be the implications for them?
Property ladder: Most would be first-time buyers find it very tough to clamber on
Linda Mckay, of This is Money, replies: The rising cost of living means that many of those aged under 40 are asking for part, or all, of their legacy ahead of time. Grown up children, such as yourself, may be in desperate need of cash to pay off debts, for a property deposit, to get through a period of unemployment, for university fees for their own children or even to pay for a wedding.
Many taxes are unavoidable but inheritance tax is a very simple tax and one that can be limited with planning. It seems you have a virtuous circle where you need funds now and possibly your parents don't. It is potentially a win-win situation, the only loser is the taxman.
According to HMRC the annual gift allowance is £3,000, although your parents could add the previous tax year's allowance if unused, which would then total £6,000. There are other gift allowances, such as gifts that may be given on marriage, your parents could each gift £5,000 but exemptions can not be combined to increase the amounts given away to the same person. For further details visit HMRC
I asked one of our experts for further advice:
Daniel Howard of Skipton Financial Services replies: The implications for your parents would be that the gift would be deemed as a potentially exempt transfer for inheritance tax (IHT) purposes and if they died within seven years of making the gift then the value of this gift would be included within their estate on death.
However, if your parents survived seven years then no inheritance tax would be payable on this gift. Alternatively if they leave the money in cash savings earning little or no interest then this will always be included within their estate for inheritance tax purposes.
Another consideration is that after making an outright gift your parents would no longer be able to access these funds in future should a requirement for capital or income arise. You say that your parents are ‘reasonably well off’.
If your parents have no access to the funds they gift to you then it could become a problem if the value of the savings and investments they plan to live off in retirement are depleted or if they exceed their estimated life expectancy.
Inheritance tax is a complex issue and I would always suggest discussing the individual circumstances of each case with an inheritance tax specialist. From the information you have provided it is not possible to give specific inheritance tax advice therefore the information provided is generic.
Linda Mckay adds: Your mother and father should most certainly consult an independent financial advisor to check their personal situation as those relying on the interest of their investments may struggle with no earnings and the continuing rise in inflation.
They should ensure they are covered by their savings for pension needs, any health emergencies (including care home fees) or housing problems and possible retirement plans so that a decision can be reached that is not purely based on emotion of parent/child car
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