Everyone likes a gift, but there are risks to giving an inheritance early

Many parents dream of having something to pass on to their children, whether it be money or property, and now some are transferring assets so they can see their offspring enjoying the fruits of their labour.

Research from Direct Line Life Insurance, based on a poll of 2,000 adults, found 20% have given their children ‘their inheritance’ early, to try to reduce the amount of inheritance tax payable on their estates.

The average value of assets transferred to children early was £32,920.

Parents in London were the most likely to have transferred assets to their children, with more than two in five awarding their kids a ‘half-time inheritance,’ averaging a huge £119,207. The capital is followed by the North East at 3o% and Yorkshire and Humberside at 19%.

On the other end of the scale, only 11% of East Midlands-based parents have passed on assets early.

Welsh parents have on average moved the lowest amount at just £9,009.

An increasing number of broken marriages are also making inheritance planning even more complicated, with divorcees transferring assets to named beneficiaries early to avoid them going to their new partner if they remarry.

One in seven divorcees has already transferred assets to their children or has placed them in trust, gifting on average £16,602.80, Direct Line said.

Another 37% of divorcees plan to transfer money in future if they remarry.  Almost a quarter of divorced made these transfers because they were concerned that their new partner would not provide for their beneficiaries in the event of their death.

Each person has an inheritance tax threshold before any payment is due.

Inheritance tax (IHT) – charged at 40% – is only payable on estates worth above £325,000 currently and this allowance is passed onto to a spouse when one partner dies, meaning parents could end up with up to £650,000 combined that could be passed on once both pass away.

Property can be transferred without any tax liability from one spouse to another and if your estate is worth above £325,000, there is also an allowance for passing on your home to your children at £125,000 for the 2018/2019 tax year.

This effectively gives you an allowance of £450,000 before IHT is payable.
You can also give away gifts of up to £3,000 each year and small gifts of up to £250 without any IHT liability.

That is a lot of money that can be passed on before worrying about tax, but you have to ensure it is all recorded properly.

There are tax implications to passing on assets above these thresholds early so it is important to speak with your financial adviser, especially as there are other ways to ensure your loved ones are cared for such as through life insurance.

We can help with estate planning and ensuring your family is looked after both while you are alive and when you are no longer around.

• For tax advice please refer to an accountant or tax specialist
• HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen