Which? Issues Warning on Inheritance Tax Gifting Allowance
Consumer group Which? has issued a warning to parents about the £3,000 annual inheritance tax gifting allowance before they hand over large sums towards a house deposit. Which? said parents transferring substantial sums without taking advantage of available exemptions could face a 'hefty' inheritance tax bill.
Understanding the Annual Gift Allowance
Gifting money to children is not always subject to tax, as you have an annual gift allowance of £3,000 for the 2026/27 tax year. This allowance can be rolled over once if unused, allowing you to gift up to £6,000 in a single year. Additionally, small gifts of up to £250 per child, and wedding gifts up to specific limits, are also tax-free.
The 7-Year Rule and Its Implications
Under the 7-year rule, inheritance tax on large gifts can apply if the giver passes away within seven years of making the gift. This means parents need to plan carefully to avoid unexpected tax liabilities.
Evidence Required by Mortgage Lenders
Mortgage lenders typically ask borrowers to provide evidence showing where deposit funds originated. Parents making an outright gift may also be required 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? Advice on Helping Children Buy Property
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 organisation also encouraged parents to seek professional advice before making significant financial commitments, particularly where retirement plans or inheritance tax liabilities could be affected.
Importance of Documentation and Professional Advice
Specialists advise that families should establish from the very beginning whether money is being provided as a gift, a loan or an investment, and make certain that any arrangements are thoroughly documented in order to prevent disputes further down the line. As first-time buyers become ever more reliant on financial support from their parents, getting to grips with inheritance tax regulations could prove every bit as crucial as securing the right mortgage deal.
