Money Saving Expert Martin Lewis has shared an urgent warning for grandparents who are planning on 'gifting' money to their grandkids - and revealed his top tax tip to help.
Martin Lewis has saved many families time and money with his incredible money-saving advice and family finance insights. From his holiday warning you need to hear to his insight on whether households should fix energy prices or stay on the price cap, his knowledge has helped thousands. And now he's turning his attention to grandparents.
During an episode of his hit podcast, Not The Martin Lewis Podcast, where Lewis speaks with experts to get their insight alongside his own as he answers listener questions about their finances, one person asked for some advice on getting their inheritance from their grandparents early.
They said, "My grandparents wish to gift me part of my inheritance early. I understand that they can give £3,000 each tax-free. But since this is the first time, can they carry over last year's allowance?"
A guest on the podcast, chartered tax adviser Kari Mellon from Opes Tax, told the listener that, yes, last year's tax-free allowance can be carried over as it's the first time they would they would be receiving the gift.
"Yes, £6,000 in the first year and then £3,000 for each year afterwards," Mellon clarified about tax-free allowance before Lewis shared a great tip, "They may be able to give you more if they have surplus income that they could give away."
Explaining the tax tip that can allow grandparents to 'gift' their grandchildren money tax-free, fellow podcast guest Rebecca Benneyworth, from Rebecca Benneyworth & Co, said, "Providing you make regular gifts from your surplus income which do not affect your standard of living, those gifts are immediately free from inheritance tax."
It's a little more complicated than just gifting money though. Benneyworth explains, "First of all, you have to identify what is your surplus income. If you take in all of your income that you receive in a year, take off all of your expenses including a new car or a holiday and your tax liability. If you have a surplus left over, then that's the maximum that you could give away."
It could cause some trouble if the gifting grandparent passes away before making the gift payments a regular occurrence as the executors of their will may struggle to prove that no tax has to be paid on the payments you've already received.
"There was a case a few years ago where someone died after only making one or two gifts out of surplus income, but the executors were able to prove that the intention was there to make it a very regular pattern, so they were successful in their claim," she shared.
"But if you've made them three or four times a year for a number of years, you've got a really good pattern there."
Money can be a tricky topic to speak about but it's so important to bring it up with your family. Whether that means speaking about how to write a will and the five things ALL parents should include or discussing how much pocket money you should you give kids, being open and candid about both money successes and struggles will take a weight off your back.
