Cost-of-living crisis could see more withdrawals from ‘Bank of Mum and Dad’
Rising bills could mean that increasing numbers of parents 'want – or need – to give their children money'.
Turning to the “Bank of Mum and Dad” could become “more common” as the cost-of-living crisis mounts, an expert has said.
Lawyer Grant Johnson said rising bills could mean that increasing numbers of parents “want – or need – to give their children money”.
But he warned those donating significant sums of cash to their offspring that this could “come at a cost” in terms of inheritance tax.
While the so-called Bank of Mum and Dad has more traditionally been linked with parents helping their adult offspring to get on the property ladder, Mr Johnson said rapidly increasing living costs, combined with the natural instinct of a parent to help, could see more people turn to this.
In such situations he said expert advice should always be sought, to avoid “potential inheritance tax implications”.
HM Revenue and Customs (HMRC) rules set out that cash or items with a value of up to £3,000 can be given tax free each year – although different limits apply if money is being given to a child towards wedding costs
Gifts worth more than that could be liable for inheritance tax if the person making them dies within seven years.
Mr Johnson, of law firm Lindsays, said: “The natural instinct of a parent is to help wherever they can. Sometimes that means they want – or need – to give their children money.
“There’s the chance that this could become even more common as bills for all of us rise.”
He added: “Looking at the property market alone, it may even be that more first-time buyers will be reliant on their families for support because they can save even less due to the cost of daily life going up.”
But the lawyer stated: “Sadly some gifts come at a cost which all too many people do not realise, perhaps most commonly when trying to help someone buy a home of their own.
“If or when you open the Bank of Mum and Dad, you need to be aware of potential inheritance tax implications.
“It’s a commonly misheld view that it’s just help with buying a home which carries risk when it comes to tax. HMRC says a gift can be anything which has value. That could include help with the cost of major house repairs or projects, a present of a car or family treasure.”
He continued: “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 – even before financial pressures stepped up a gear. But it is still possible for help to be given, so long as people seek expert advice before they make their gift.”