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Inheritance tax warning as helping family with mortgage payments could increase bill | Personal Finance | Finance


With the basic rate rising, many parents are turning to worrying about not being able to pay rising bills, and an expert has explained what people should be aware of.

One expert explained what people should be aware of.

On BBC Money Box, Keith sent an email because he was worried about his children’s rising monthly mortgage payments.

His two children are facing huge monthly increases and he wants to help them use the money from the sale of his house.

Sarah Coles, head of personal finance at Hargreaves Lansdown explained the gift rules and any implications Keith might have.

Miss Coles warned people about the gift allowances every year. People have a certain amount they can donate each year tax free.

This is £3,000; but people can use their allowance from the previous year, which means they can give a total of £6,000.

Miss Coles said: “If you’re giving more than that it will be a Potentially Exempt Transfer (PET).

“This means for the next seven years; you still own the account.

“So if you live for seven years, it moves out of your estate and you don’t have to worry about inheritance tax.

“But if you were to die during that time, at least some of that money would come back into your estate and you could be subject to inheritance tax.

“It’s worth knowing a bit about what you need in your estate to avoid IHT at all.

“In some cases, you can make £1million and not be dirty at all so it’s worth looking at the sums and seeing if it would be an issue for you.”

With the Bank of England raising UK interest rates to their highest level since 2008 and the average two-year fixed rate mortgage now above six per cent, many people will be turning to parents for help with their mortgage and other bills to pay.

Research from the Saltus Wealth Index has shown that 79 percent of parents are now stepping in to financially support their grown children with everyday expenses, and of those, one in four is helping specifically with mortgage payments.

The average rate for a two-year fixed deal recently topped six per cent this month pushing the average repayment on a £200,000 25-year mortgage up £383.50 in just two years.

Over a period of two years, this represents an additional cost of £9,204; many families are struggling to cover that extra cost and are turning more and more to their parents to help them.

Miss Coles encouraged parents to understand the potential inheritance tax implications of donating large sums of money each year.

Inheritance tax is charged at 40 per cent on anything above the standard nil rate band – which is £325,000 per person.

If the estate being passed on will not be covered by the residential nil rate band, people may consider making gifts before they die.

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