How much money am I allowed to gift my grandchildren without tax implications?

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How much money am I allowed to gift my grandchildren without tax implications?

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I am 82 and wish to make a money gift to each of my five grandchildren. I have a sufficient, modest income with no tax obligations.

I think I am well below inheritance tax commitments. What size of gift is allowed? J.C.

Linda Mckay, of This is Money, replies:
With your grandchildren about to start university or maybe trying to
rent their first property this is the perfect time for you to step in
with a little financial assistance.

Your gift could make a difference finding that deposit on a home or help to pay for tuition fees.

Giving
now means you can enjoy their use of your hard earned money and will
mean less to pay in tax for the family. I asked our inheritance tax
experts for guidance.

Gareth Smith, of Skipton Financial Services, replies:
When making gifts within your lifetime you can give up to £3,000 per
tax year which will be immediately exempt from inheritance tax, this
allowance is called an annual exemption.

If
you haven’t made any gifts in the previous tax year then you can carry
forward the unused allowance to provide you with £6,000 to gift which is
immediately free from inheritance tax.

If
you are making gifts of £250 or less then, in addition to the annual
exemption, you can take advantage of the small gifts allowance.

This
allowance ensures that you can make cash gifts of up to £250 to as many
people as you want and this will be immediately free from inheritance
tax.

However, this allowance cannot be made to someone who has benefited from the annual exemption already.

If
you are looking to make regular gifts to your grandchildren then they
may fall within the rules governing gifts out of normal expenditure.

To
benefit from this you must ensure that the gifts do not affect your
standard of living, they must be regular payments and there must be
something in place to show that the payments would continue should you
die.

To prove that the
gifts have not affected your standard of living then you must complete
an income and expenditure list so that the executors of your estate can
prove this.

If you make
gifts, which do not fall within these exemptions, then the gift could be
a potentially exempt transfer; this means that you need to survive
seven years from the date of making the gift for the gifts not to be
subject to inheritance tax.

If
you survive seven years from the date of the gift then it is free from
inheritance tax however, if you do not survive the full seven years then
these gifts will use part of the nil rate band (£325,000 for the
2011/2012 tax year) which is available to offset against your estate.

Any gifts in excess of the nil rate band will be subject to inheritance tax at 40 per cent.

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