Grant Johnson

Presents of cash, a car or money for a holiday come with potential pitfalls that many people simply do not realise, according to the firm.

Lindsays has said they are working with an increasing number of families to avoid costly consequences should unforeseen circumstances strike.

The firm, which has offices in Edinburgh, Glasgow and Dundee, has seen a rise in the number of cases it is dealing with where people risk being stung with an unexpected inheritance tax (IHT) bill because they and their parents were unaware of the implications of what they thought was a gift.

Inheritance tax would be payable if the person who made the gift dies within seven years of making it.

Cases come at a time when grown-up children - part of the so-called Generation Rent - have never needed more help from the ‘bank of mum and dad’ to support them with significant purchases.

Grant Johnson, head of private client at Lindsays, said: “The problems of Generation Rent are well-known. On one hand, high house prices have driven up the deposits that first-time buyers need to save.

“On the other hand, rising rents have made it harder for would-be homeowners to save anything at all. It’s not surprising that mothers, fathers and other generous relatives are minded to help if they can.

“The economic uncertainty surrounding the Covid recovery only makes the situation more difficult for Generation Rent. But although this Christmas of all Christmases might feel like the right time to open the Bank of Mum and Dad, you need to be aware of potential inheritance tax implications.”

Figures from Legal & General show that almost 260,000 property deals in the UK were supported by buyers’ parents, with an average contribution of more than £24,000. A third of people surveyed said they expected help from their parents to buy a house over the next five years.

But Mr Johnson added: “It’s not just help with buying a home which carries risk. HMRC says a gift can be anything which has value. That could include a surprise holiday, help with the cost of major house repairs or projects, a present of a car or family treasure.

“Inheritance tax rules are complicated - even the Government has said they should be simpler and fairer. It is possible that the seven year rule could be reduced, but there’s no time-scale on that.

“With the growing number of people relying on relatives to help them climb on to the property ladder, there are more who may fall into this trap. But it is still possible for help to be given, so long as people seek expert advice before they make their gift.”

Tax-free giving guide:

• You can give items or cash with a value of up to £3,000 each tax year (any unused annual exemption can be carried forward one year only).
• Up to £5,000 can be gifted from each parent for a child’s marriage or civil partnership (or £2,500 for a grandchild, and £1,000 for anyone else).
• Regular gifting made as part of ‘normal expenditure out of income’, including birthday or Christmas presents is allowed.
• Combining exemptions for the same person is allowable, meaning a couple whose child was marrying could each give them at least £8,000 in ‘exempted gifts’ (a wedding gift of £5,000, a £3,000 gift, any unused exemption from the previous year, and a top-up birthday present). Other family members could also chip in.
• Beware any gifts do not push your estate above the inheritance tax threshold (£325,000 in the current tax year).