Millions of Parents Gift Inheritance To Avoid Hefty Taxes

More than 6.9 million parents give their children inheritance early, according to new research.

Almost seven million Mums and Dads want to see their children enjoying their hard-earned cash while they are still alive by transferring assets to their kids in a bid to mitigate the amount of inheritance tax payable on their estates.

This amounts to a total of £227 billion, at an average of £32,920.10. Avoiding a big bill from the tax man is important for many parents, according to the data. It found that a further 6.5 million parents have not yet transferred assets to their kids but plan to do so in the future to avoid a hefty inheritance tax bill.

Jane Morgan, business manager at Direct Line Life Insurance, who commissioned the survey, said: “Worrying about what happens to your children when you’re no longer around is natural for any parent and it is understandable that people want to maximise the money they leave behind.

“However, it is important that people planning to transfer money understand the tax implications that a gift might give rise to.

“With almost one in ten parents placing their assets into trust, this is something people should also consider when arranging their life insurance. Placing a life insurance policy into a trust could avoid payments being included in inheritance tax calculations. However, despite this, just 20 per cent of people with a life insurance policy have placed this into trust and almost a fifth of those with a life insurance policy admit they did not know this was an option.”

Of those who haven’t considered giving their children their inheritance early, 34 per cent said they did not have any assets to transfer, while more than one in ten indicated that they might, but that their children were presently too young to be gifted money.

A further 13 per cent were concerned that they might need their assets in retirement.

One in eight parents quizzed also believed their children should not be provided for while they are still alive, while nine per cent did not know that gifting money could reduce their inheritance tax bill when they pass away.

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. In fact, one in seven divorcees have already transferred assets to their children or has placed them in trust, gifting on average £16,602.80.

Another 37 per cent of divorcees plan to transfer money in future if they remarry.

Philip Munro, partner at law firm Withers LLP, said: “Lifetime gifting is a strategy that can be used to reduce a future potential inheritance liability and will appeal to many parents who want to provide for their children, particularly as they may be struggling to access the current housing market. However, there can be inheritance and capital gains tax implications in the making of gifts and so parents should consider taking tax advice.

“Where individuals are taking out life insurance it would often be recommended that these polices be held in trust to avoid their proceeds being taxed on the death of the life insured.” Interestingly, parents in London are 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.

According to the research, which was conducted by Opinium and quizzed 2,003 adults in July, only one in nine East Midlands-based parents have taken this tax mitigating measure.

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