I’d like to give a big sum of money to my family while I’m still alive – is this ok?

Published by Patrick Connolly on 04 June 2019.
Last updated on 04 June 2019

Q

I am 71, retired and do not pay income tax. I am financially secure and own my own home. I’d like to give fairly large sums of money to my family now, rather than wait until I die. Is there any reason I cannot do this?

From:
LP/Hertfordshire

A

In theory this is fine. But there are pitfalls you need to be aware of. The first is that you shouldn’t give away money you may need yourself in the future. While I’m sure your family would appreciate any gifts, they also wouldn’t like to see your standard of living affected because you have less money. So you should only gift money that you’re confident you won’t need.

The second is to understand any potential inheritance tax (IHT) consequences (see table below for current IHT thresholds). There are several gift allowances you can take up in your lifetime that aren’t subject to IHT, such as the annual exemption, where you can gift up to £3,000 a year and which is immediately exempt from IHT, or £6,000 if you did not make such a gift in the previous tax year.

If gifts are intended to be made on a regular basis, come out of income, and do not affect your standard of living, they can be ignored for IHT purposes regardless of size. For those with larger incomes this can make a significant difference to their potential tax liability, though it may not be so relevant to you as a non-taxpayer.

You can make further gifts in excess of the tax-free exemptions; these are known as potentially exempt transfers (PETs). For these to be excluded from IHT calculations you need to survive for seven years after making the gift.

The third consideration is with regard to long-term care. If you need long-term care and your local authority decides that you gave away assets in order to qualify for increased financial support, they can still take this money into account as if you owned it or attempt to recover it from your family. This is called ‘deliberate deprivation of assets’. However, this is only likely to apply if you are in bad health now and need care in the reasonably near future.

This article was written in response to a reader’s question. If you have a financial or work/career question that has left you scratching your head ask our panel of experts who will aim to shine some light on the matter.

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