I refused to help my son by a house — but now it might help me dodge tax - Australia News Beep

Richard doesn’t want to give his son ‘handouts’ (Picture: Getty Images/Westend61)

The Bank of Mum and Dad is now involved in roughly half of all first-time buyer purchases in the UK.

For many young people facing a toxic combination of stagnant wages and soaring house prices, it’s the only way to get onto the property ladder before the age of 40.

But while many are only too happy to help their kids out, there are those who feel handouts are no match for hard work and saving.

This week’s reader, Richard, 79, from Cheshire, is firmly in the latter camp.

However, a recent visit to his financial adviser has him rethinking his refusal to stump up a deposit for his grown-up son’s his first home.

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Wondering if this strategy is legitimate, he reached out to Metro consumer champion, Sarah Davidson.

The question…

I took early retirement at 58 on a very generous final salary pension. My wife still works part-time and we own our home outright. We are, by any measure, comfortable.

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My issue is with my son, who is 39 and works in the arts. He earns very little and rents a flat in Manchester.

He has been asking us to help him buy a property for years and we have always said no. We worked hard for what we have and we believe he should do the same.

Getting on the ladder is harder than ever (Picture: Getty)

However, my financial adviser has recently told me that our estate will face a significant inheritance tax bill when we die and that gifting money now could reduce that liability.

I am now wondering whether to give my son a deposit. I don’t think he deserves a handout but, ultimately, he is going to inherit from us anyway and I don’t want to hand over more to the government than I need to.

Is this a legitimate strategy, and does it make us terrible parents for only doing it for tax reasons?

The answer…

Let’s break this down: there are three things for you to consider.

One, you have resisted helping your son buy his first home to teach him the value of earning it for himself.

Two, you want your son to inherit the wealth you have earned in your lifetime.

Three, you want to protect as much of that wealth from His Majesty’s Revenue and Customs as you can.

Do you think the parents should gift their son money for a house deposit?

Yes, it’s practical and helps reduce tax.Check

No, it doesn’t align with their values.Check

Perhaps, but only under certain conditions.Check

Does this make you terrible parents? I’m afraid that’s a question for a different kind of agony aunt.

Instead, ask yourself a different question – does it matter? Money rarely sits well with emotional or moral choices so, where possible, I’d advise pairing planning your finances with rational decisions.

From a purely financial perspective, your adviser is absolutely right. Gifting money during your lifetime is one of the most effective and legitimate ways to reduce an inheritance tax (IHT) bill.

But you need to understand exactly how the rules work, because the taxman does not simply look the other way the moment the money leaves your account.

There are a number of rules when it comes to inheritance tax (Picture: Getty Images)

Under HMRC rules, you can give away up to £3,000 each tax year without it being added to the value of your estate.

This is your ‘annual exemption’. If you didn’t use last year’s amount, you can carry it forward, meaning you and your wife could potentially gift £12,000 entirely tax-free right now. A house deposit is likely to be significantly larger than that though.

Anything you gift above your annual exemption becomes what HMRC calls a ‘potentially exempt transfer’ (PET).

The key word there is ‘potentially’. For the gift to become entirely free of inheritance tax, you must survive for seven clear years after handing the money over. This is known as the seven-year rule.

If you die within three years of making the gift, the entire amount will be counted as part of your estate and taxed at the standard 40% IHT rate, whereas if you die between three and seven years afterwards, the tax rate tapers down on a sliding scale – dropping to 32% in year four, 8% in year six and finally reaching zero once you pass the seven-year mark.

I refused to help my son by a house — but now it might help me dodge tax

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