Living inheritances help keep Generations X and Y afloat

Retirement Advantage has revealed new research which shows a significant number of Gens x and y are receiving gifts from older relatives, with these ‘living inheritances’ helping out with the everyday cost of living as well as weddings, holidays and getting on the housing ladder.

The data shows 2 in 5 people (39%) aged 50 or over have helped children or grandchildren financially in the last six months, with the top five reasons for gifting being:

Birthdays 25%; university 23%; general loans 22%; paying off debt 19%; house deposit 18%.

Andrew Tully, pensions technical director at Retirement Advantage, said: ‘Living inheritances are clearly helping out cash-strapped children and grandchildren who may be struggling with the day-to-day cost of living.

‘There are some simple rules to remember when gifting which should ensure you don’t fall foul of the tax man. The main thing to remember if you are aged 55 or over, and thinking of gifting some of your pension, is that any withdrawal over the first 25% is treated as income and will be taxed as such. There are free calculators available online which can help ensure you withdraw funds as tax efficiently as possible.’

Some tips and rules on gifting

1.    You can gift away £3,000 a year without falling foul of inheritance tax. This is known as your ‘annual exemption’. You can also carry forward unused allowance to the following tax year, but only for one year.

2.    You can also gift up to £1,000 (or £2,500 for a grandchild or £5,000 for a child) for wedding or civil ceremonies

3.    You can make small gifts up to £250 per person as many times as you wish in the tax year so long as you haven’t used another exemption for the same person

4.    The 7 year rule – if you die within 7 years of the gift, then the recipient is potentially liable for inheritance tax (IHT). There is a sliding scale of tax depending upon the proximity of the gift to the date of death.

5.    If you are gifting money from your pension, remember any cash withdrawal over the 25% tax-free cash allowance (and from the age of 55) will be treated as income and taxed accordingly.

Useful links

Government website explaining the tax rules around gifting: https://www.gov.uk/inheritance-tax/gifts

Free pension tax calculator: http://www.retirementadvantage.com/pension-tax-calculator

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