How lifetime gifting can be more beneficial than a late inheritance

As people are living longer, one direct impact is that we’re seeing their beneficiaries inherit later and later, into their 60s or even 70s.

While your family will be glad to have you around for longer, it can sometimes mean they receive their inheritance from you at a less beneficial time in their lives.

You don’t have to wait until you pass away, however, to start gifting your wealth. And there can be some really lovely benefits to lifetime gifting for you, too. Read on to find out what they could be.

Shifting your focus from leaving an inheritance to “lifetime gifting” can give your loved ones a financial boost when they need it most

According to CNBC, research has shown that the average age for Millennials – those born between 1981 and 1996 – to receive an inheritance is 61, even though most said they would have expected to receive it by the age of 50.

This is a big discrepancy between expectation and reality. Even if they did receive the inheritance by the age of 50, many people will have already cleared the big financial hurdles in life.

An earlier gift, however, could help with significant expenses, such as:

• A house deposit
• Paying off student debts
• Helping with childcare or school fees.

You’ll see the difference your money makes and enjoy creating memories with your family

Distributing your wealth at a time that will be most helpful can give you the added pleasure of seeing your loved ones enjoying your gifts.

This could be helping them get their foot on the property ladder, or moving to a larger home, for example. It could even be a big family holiday that you can all enjoy.

However it’s spent, being around to be a part of that can be a great feeling.

You can gift without giving everything away, and this will form part of your financial strategy

Gifting while you’re still alive is about enjoying seeing your loved ones benefit. It’s not about risking your own financial security, but more about using your money intentionally.

This is where Anderson Financial can help. We’ll work with you to devise an effective estate planning strategy that allows you to make generous gifts, but still keep enough of your wealth to enjoy your own life.

There are three usual ways to make gifts during your lifetime, which can help your loved ones out and at the same time mitigate an Inheritance Tax (IHT) bill they may face when you pass away.

1. Cash gifts

If you’d like to make cash gifts, you can:

• Gift up to £3,000 each tax year without it being included in your estate for Inheritance Tax (IHT) purposes
• Carry this forward if it’s unused, by one tax year
• Give up to £250 per person in each tax year, to as many people as you like.

Anything above this amount is classed as a Potentially Exempt Transfer (PET). If you live for seven years after making the gift, it will fall outside your estate and not be in the scope of IHT.

If you die within seven years, it may be eligible for taper relief, reducing the standard 40% rate of IHT each year after the first three.

2. Gifts from surplus income

For gifts to qualify under the “surplus income” rule, they need to:

• Be made from your regular income, not your savings
• Not adversely affect your standard of living
• Form a regular pattern of giving.

This can be a good way to give regular payments to your loved ones to help them with their everyday expenses or to save for a special occasion.

Under these criteria, an unlimited number of gifts from surplus income will also be exempt from your estate for IHT purposes.

3. Gifting for life events

You can also make IHT-exempt gifts to your loved ones for specific life events, such as a wedding or civil partnership. These can be up to:

• £5,000 for children (including adopted children, foster children, and stepchildren)
• £2,500 for grandchildren
• £1,000 to anyone else.

This can be a particularly nice way to gift your wealth, contributing towards a happy occasion that you will be present to enjoy.

Get in touch

Done effectively, lifetime gifting can give your loved ones part of your wealth when they need it most, and allow you to see them enjoy it.

However, this should form part of your wider financial plan. We can work with you to establish how much you can afford to gift and when, without detrimentally impacting your own finances or standard of living.

Email us at info@andersonfinancialltd.com or call us on 020 8943 0065.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate estate planning.

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.

Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.