Parents helping their children onto the property ladder are being warned about a little-known HMRC rule that could lead to a large tax bill if not followed. Consumer group Which? says families need to understand the tax consequences before handing over large sums for a deposit.
What Is the £3,000 Gift Rule?
HMRC's annual gifting allowance permits individuals to give away up to £3,000 each tax year without the money counting towards inheritance tax. If a parent dies within seven years of making a gift exceeding this allowance, the amount could be dragged back into their estate for inheritance tax purposes.
Which? advises parents to make use of this allowance to avoid a "hefty" inheritance tax bill. The £3,000 allowance can be carried forward for one year if not used previously. This means a couple who have not made gifts in the previous tax year could potentially give away as much as £12,000 between them without it counting towards inheritance tax.
Additional Gifting Options
Separate gifts of up to £250 per person are also permitted under HMRC rules. According to Which?, gifting or lending a deposit remains one of the most common ways parents help children buy a home. Mums and dads making an outright gift may need to sign a declaration confirming the money does not need to be repaid and that they will have no legal interest in the property.
Which?'s Advice for Parents
Which? said: "If you're looking to help your child buy a property, the good news is that there are several routes available – including gifting or loaning a deposit, acting as a guarantor for their mortgage or taking out a mortgage together."
The consumer group stresses that parents must be aware of the seven-year rule, which could bring gifts back into the estate for inheritance tax calculations. By using the annual £3,000 allowance efficiently, families can reduce the risk of a future tax bill.
