According to a recent survey carried out by an equity release provider called Key Retirement, almost half of parents and grandparents do not understand the tax rules on making gifts. This substantial minority is unaware that their estate might have to pay inheritance tax on gifts which have been made to family members.

With more mums and dads helping out their children with property purchases, the potential IHT liability may be overlooked. In London, gifts around £100,000 are not uncommon.

Here is a brief summary of the gift rules:

Any gifts which do not fall within the above will be exempt from inheritance tax if the donor, that is to say the person making the gifts, lives at least 7 years. If death occurs within that period, tax will depend on whether the gifts in total were worth more or less than the current inheritance tax threshold of £325,000. If they are worth less than the threshold they are added to the estate which will be responsible for the tax. If the value of the gifts made in the 7 years exceed the threshold, the person who received the gift may be responsible for paying the tax and the tax rate will range from 40% for gifts made within 3 years of death to 8% for gifts made 6 years before the death.

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