One important aspect of giving money to purchase a home (however the purchase is structured) is that it constitutes what is termed as a potentially exempt transfer (PET for short). A PET is the name given by HM Revenue & Customs to a gift over and above £3,000 per annum to any third party.
The implications of a PET are that you must survive having given the gift by seven years otherwise the amount of the gift is added back to your estate for the Inheritance Tax calculation and may be taxed if your estate is of a certain value. The tax is payable by the person who has received the gift in proportion to the amount of the gift that they have received in relation to the value of your whole estate. If they are unable to pay the tax the Revenue can come against the estate as a second option for payment.
If the amount of the gift means that you exceed your Inheritance Tax Nil Rate Band, currently £325,000, then the tax is tapered as follows
- 20% after three years
- 40% after four years
- 60% after five years
- 80% after six years
- 100% after seven years
Don’t get caught out
If you are thinking of gifting your child money towards their new home please contact us to find out the implications. You can fill out our enquiry form and we will get back to you.
Please contact us if you need to know more. You can fill out our enquiry form and we will get back to you.
If you can’t find the information you are seeking or just want a fuller explanation please call us. We have a number of offices in and around London that may be convenient for you to contact but we will be able to help wherever you are based.