As Stockport’s future ‘A’ level entrepreneurs finalise their university places, the question of fees is a hot topic of conversation. Student loans are often an under-graduates first introduction in getting to grips with the real cost of education and living; for some it may be the ‘bank of mum and dad’ that help in budgeting for the future.
Marketing Stockport member Hallidays – Accountants ad Business Advisors – are introducing a ‘Question & Answer’ forum for families and relatives looking to provide financial assistance. This week we have looked at a scenario that may help in the decision process.
Q: Our granddaughter is off to University in September and we would like to make a financial contribution. The total value of our joint estate is approximately £1million, comprising our home £550k, cash and investments £300k and a house we rent out valued at £150k. Can we just give our granddaughter a lump sum of £10,000?
A: You can give any cash gift but this cash will still form part of your estate for inheritance purposes unless you live for more than 7 years after the gift.
Q: Could we give her the net rental income we receive each month as we don’t need this cash to live on?
Unless you gave the property to her, you would still be paying income tax on the rental income. However, if you can show that this was ‘excess income’ (i.e. income over and above your expenditure) and you continue to make the payment year on year, the gifts would not be considered to still form part of your estate and the 7 year rule above would not apply. If you are going to do this we would recommended that you keep a record.
However, from a tax perspective view it would be more efficient to transfer the property to a Trust. An election (claim) can be made so that you do not pay any capital gains tax on the transfer to the Trust as a gift. The Trust will have to pay tax on the income at 50% but then your granddaughter can reclaim this tax back.
Q: But we won’t be able to match this gift for our other grandchildren.
A: Trusts are flexible and can be drawn up so that all your grandchildren current and future can benefit from the income and you can both be Trustees so you have a say in who gets what and when.
Philip Eagle, Tax Partner, Hallidays LLP – Business Advisors and Accountants, can help answer your queries. Visit: www.hallidays.co.uk