Grandparents could help families with cost of living crunch: Living inheritance explained

Inheritance tax explained by Interactive Investor expert

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Inflation is expected to reach levels not experienced for four decades, and the Bank of England has increased the base rate to one percent, leaving many skating on the edges of poverty. Debt advisory specialists Henry Dannell shared how living inheritance could be an option for more people as young generations struggle with the cost of living.

Ever mounting costs and debt could spell financial disaster for many, but older generations may hold the key to helping their young relatives stay out of poverty. 

Since the times of Ancient Greece inheritance has been a tradition of leaving one’s estate to their loved ones upon their death. 

To this day, the most common practice is specifically to pass on this capital in a will, but another process for this is known as living inheritance. 

Living inheritance is the practice of passing on an estate while the person is still alive. 

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Older man considering living inheritance

People giving a living inheritance should be sure that they have enough to survive on (Image: GETTY)

While it may sound peculiar or even slightly disturbed, some people opt for this practice to help their loved ones reach financially-tasking milestones like paying for university or buying a house. 

It can also provide the person with the benefit of seeing their loved one prosper through the financial backing they provided. 

The director of Henry Dannell, Geoff Garrett, explained: “It’s not uncommon for those enjoying their later years in life to opt for a living inheritance as it allows them to support loved ones here and now, while also removing a potentially hefty inheritance tax bill on their hard earned wealth.

“This is becoming increasingly preferable for those looking to help their children or grandchildren with the high cost of climbing the property ladder and, more recently, the escalating cost of living.”

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Inflation growth

Inflation has been steadily climbing since the end of last year (Image: EXPRESS)

Henry Dannell specialists noted “it’s vital” that people looking to pass on a living inheritance are sure that they will still be able to support themselves financially for the rest of their lives before giving it away. 

They noted: “A good ‘rule of thumb’ is to give away what you definitely will not need but leaving enough to ensure a comfortable retirement.”

There are many methods to pass on a living inheritance, some of which even provide inheritance tax relief for when they do die and provide a traditional inheritance. 

For those over the age of 55, they can release the equity held in their home, extracting the cash value of their property without having to leave. 

Gifting may be a simpler option for some although they should be wary of the thresholds of how much can be gifted without incurring tax. 

The annual exemption allows Britons to gift £3,000 each tax year without incurring inheritance tax, which can be given to one person or split between several. 

Any unused exemption can be carried forward for only one tax year. 

For wedding or civil partnership gifts there are different allowances depending on the relationship between the gifter and the recipient.

Britons can avoid incurring inheritance tax on wedding gifts worth:

  • £5,000 to their child
  • £2,500 to their grandchild or great-grandchild
  • £1,000 to any other person. 

Mr Garrett advised: “In many cases, the advisable route is to opt for a mixed strategy based on both traditional and living inheritance as it allows you to financially support loved ones, maintain your own financial cushion and to ensure that what you leave and when is as tax efficient as possible.” 

Harry Byrne

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