One fifth of parents—transferred assets to avoid inheritance tax sting

Recent research has revealed that one fifth of parents have transferred assets to their children to lessen the amount of inheritance tax payable on their estates.

Direct Line’s research revealed this amounted to more than 6.9 million parents and the assets moved amounted to £27 billion, an average of £32,920. In addition, another 6.5 million (19 percent) of parents said they hadn’t yet transferred their assets but planned to do so.

At present, the inheritance tax threshold in the UK is £325,000 which has been the case since 2010-11 and there are no plans for this to rise until at least next year. Anything over the threshold is subject to the inheritance tax rate of 40 percent, though if you plan to leave a home or you’re married or in a civil partnership, you might be able to give away more than this before the estate is taxed.

Gifts and seven-year rule

Gifts between spouses and civil partners, and gifts to charities aren’t taxed. Parents can also give their offspring tax-free gifts, as long as they are made more than seven years before their death and to an individual, rather than a business or trust. If the parent dies before the seven years are up, the gift is then taxed.

But the research also revealed that only 20 percent of people with a life insurance policy had placed it into a trust to avoid payments being included in inheritance tax calculations. And almost a fifth of those who had a life insurance policy didn’t know this was an option.

Direct Line found that the increasing number of broken marriages are making inheritance planning more complicated as divorcees often transfer assets to named heirs early to avoid them going to new partners if they remarry. Some 15 percent of divorcees have transferred assets to their children or placed them in a trust. The average gift size was just over £16,600.

Tax implications

Jane Morgan, Direct Line Life Insurance’s business manager said it was important for people planning to transfer money that they understood the tax implications of gifts, to ensure they maximised the money they left behind.

Danny Curran, Finders International’s founder and managing director, said: “It’s easy to understand why so many people opt for gifts during their lifetime. It appeals to many parents who want to help their children gain access to the housing market, for example.

“Our new enhanced UK and overseas missing asset search service can help administrators and estate executors locate missing life insurance policies, if applicable. Searches take 50 days to complete, but we can keep you informed of anything we find during that time and will also let you know if we find assets after the 50-day period.”