Gifting money to parents isn’t given much attention and can be hard to find useful information about. When it comes to gifting money to family, most people will think of financial gifts heading down the generations to children and grandchildren. However, it is possible to give money to your parents, under the wider rules of gifting money to family.
Here we take a look at gifting money up the generations, to your parents, so that you fully understand the implications for Inheritance Tax and any other consequences.
The basic rules of gifting money to family
We have previously looked in depth at gifting money to family. There are some basic rules which you need to follow regardless of who the recipient is (excluding your spouse, civil partner or UK registered charity):
- The gift must be given at least 7 years before you die, otherwise there may be tax implications
- If you die within 7 years of giving the gift, then the tax-free threshold is £3,000 for a gift
It is important to note – particularly when gifting up the generations rather than down – that these are Inheritance Tax rules. Therefore, they only come in to play in the event that the individual giving the monetary gift dies. This means there is no limit on how much you can give as a financial gift.
Please note: Inheritance Tax planning is not regulated by the Financial Conduct Authority
Given that in most cases children can expect to outlive their parents, it is unlikely to pose a problem when gifting money to parents. A good example of this would be in the event that an adult child has received a windfall, or even an inheritance, and would like to gift some of their wealth to their parents. In such a situation, it is often fair to assume that the adult child will outlive the parent by at least 7 years.
In most scenarios, it would therefore be possible to gift the amount you would like to give with less concern for future Inheritance Tax liabilities. Nonetheless, recipients of financial gifts should always be aware of the 7 year Inheritance Tax rule in case this comes in to play unexpectedly.
However, where it is less safe to assume that gifting can be unlimited, is when there is good reason to suspect the parent will outlive the adult child.
Gifting money to parents – be careful
In this scenario, Inheritance Tax rules should be first and foremost in mind. Anyone can give anyone else up to £3,000 per year without any tax being due in the event of death. This is called the annual tax free gift allowance. If you don’t use all of your annual tax free gift allowance in one year then this can roll over to the next year only.
Beyond this, Inheritance Tax may need to be paid on gifts made in the 7 years before the giver’s death.
Financially caring for elderly parents
There are some exceptions for certain financial gifts to be given without the same Inheritance Tax liabilities. These are particularly useful to know for adult children gifting money to parents.
Firstly, there are special allowances for wedding gifts. If your parent is getting married, then you can give them up to £1,000 as a special gift tax free.
Secondly, for most adult children wishing to give money to their parents, is the provision to help with living costs. For example, if you choose to pay for a carer to attend your parent in their own home out of your own finances, which will not be considered a gift for Inheritance Tax purposes.
On the other hand, if you’re gifting money to elderly parents. You can give them peace of mind and gift the money to be put into an Over 50s Life Insurance plan, from just £10 a month. This will help with any funeral and unexpected costs once they have died.
Finally, if an adult child can maintain their own standard of living, then they can make regular gifts from their surplus income. The key thing to remember here is that is must be regular. So for example, paying money each month directly in to their bank account.
Always seek advice
It is possible to begin gifting money to parents but it can definitely seem more complicated than gifting money to children and grandchildren. If you wish to make monetary gifts to parents, or indeed if you are a parent concerned about receiving a financial gift from an adult child, you should seek independent financial advice. Don’t rule it out as an impossibility though as this isn’t the case.
Find out more about the rules of gifting money to family, including gifting money to parents, here.