Are you in financial agony? Ask Paul Lewis, broadcaster and our new financial agony uncle. Is there something you’ve always wanted to know but don’t understand? Do you need to know your rights in a situation? Have you been in a situation where you think you’ve been ripped off?
Paul can help. He can’t take on individual cases or try to force firms or the Government to be reasonable. But you can send all those questions about things that puzzle you involving money to Paul at paul.lewis@inews.co.uk and he will answer some of them in this column. Remember, it’s your column so get those questions coming in.
Nick emailed: Dear Paul,
Could you explain the details of giving whilst living, please? My wife and I are retired and would like to pass on some of our modest savings to our two children.
- what are the advantages/disadvantages of giving whilst living?
- is there a limit to the amount you can give?
- are there any tax implications?
Any guidance you can give will be gratefully received.
Paul replies: Hi Nick, this is a question many people ponder as they get a bit older.
You can give any amount to your children (or indeed anyone else) without it coming into the inheritance tax arithmetic at all, if – and it is a big if – you live at least seven years after making the gift. None of us knows when the grim reaper will call. But a useful (or depressing!) calculator on the Office for National Statistics (ONS) website shows a man of 70 has a life expectancy of another 16 years. In other words half of all the 70-year-olds in the UK will live less than 16 years and half more. One in four will live another 22 years. Add a couple of years to each for a woman of the same age. Not until age 83, or 85 for a woman, do you have a 50:50 chance of dying in the next seven years. Search “ONS life expectancy calculator” to check yours.
Even if you die a bit earlier than seven years it could still save tax. Die in six but less than seven years and only 20 per cent of the gift is added to your estate tapering up by 20 per cent each year until if you die less than three years after making the gift the whole lot is added to your estate when inheritance tax is worked out.
TV personality Anne Robinson, aged 79, with a reputed fortune of £50m, told Saga Magazine this month she has “given it all away, I don’t want the taxman to have it. I’ve spread it about quite a lot to the children. They may as well enjoy it now.” As long as she lives seven years from the date of the gifts, no Inheritance Tax will be due – on that money at least.
So, Nick, what about your more modest savings? The first rule is never give away anything you might need in later life. Your savings are first for you so ensure you have all you need for a fun and long life. You and your wife might live well into your nineties!
The limits on gifts have not changed for more than 40 years. You can give £3,000 a year in total – so £1,500 to each of your two kids. But if you gave them nothing last tax year then you can double that to £6,000 and you and your wife can both do that – so £12,000 could be shared between them this year, then £6,000 a year thereafter.
If the £3,000 limit had risen with inflation since it was fixed in 1981 – yes 1981! – it would be £15,700 now. On top of those amounts, other gifts are allowed for weddings – those 43-year-old limits are £5,000 to a child of yours, £2,500 to a grand- or great grandchild or £1,000 to anyone. You would not get much of a wedding for that now!
In addition, you can give away any number of £250 gifts to other people but not to anyone who has had one of those bigger gifts.
If your savings are in shares or other investments it is simpler to cash them in first and give cash. You might have to pay capital gains tax (CGT) if the investments have grown in value and your total gains in the tax year exceed the current allowance of £3,000. That is a personal allowance so one each for you and your wife. Shifting investments between spouses can help keep below it. You cannot avoid CGT by giving the shares away rather than cashing them in as you will be assessed for CGT on their value on the day of the gift.
There is another nasty tax beast lurking in the undergrowth – the GROB! Any gift must be absolute. If you give it away and still have the use of it, then it will count as yours when IHT is calculated. For example, if you have a valuable painting and give it to your son or daughter but they let you hang it on your wall that is a gift with reservation of benefit (GROB) and counts as yours. Same is true of your home – you cannot give it away and live in it free!
Finally remember that any amount you leave to your wife – or she leaves to you – is entirely free of IHT. And when the second spouse dies your children will benefit from double the normal £325,000 IHT threshold before tax is due. So your kids may not have to pay any tax at all.
Maurice Saatchi: I used to adore capitalism – then I had lunch with Margaret Thatcher