Passing inheritance to grandchildren – Housing Minister says yes, No10 says no
At the Conservative Party Conference this month, Gavin Barwell, Housing Minister suggested that parents should avoid leaving their houses to their children, and opt to pass their estate and savings to grandchildren instead. No 10 quickly came out to suggest his comments were personal, and not Government policy, stating it was not for the Government to interfere in family life, although cynically some suggested it was driven by potentially reduced IHT receipts in future years.
This move to disinherit children, could allow grandchildren to get on the highly-debated housing ladder and could also potentially reduce the number of people being hit with high inheritance tax bills – another highly debated issue.
With young people finding it increasing difficult to get on the housing ladder, waiting until their 30s or 40s before having children and grandparents living much longer, an increasing number of people are looking at ‘skipping a generation’ and passing assets to their grandchildren either by direct gifts or transfers into family trust
When grandparents leave their home to grandchildren, consideration should always be given to inheritance tax. If the value of the family home is worth more than £325K (or £650K for a surviving spouse who is entitled to their deceased spouse’s unused nil rate allowance) other assets may need to be sold in order to pay the IHT bill. If not, the property itself may need to be sold to meet this tax liability. From April 2017 a new residential nil rate band is being introduced. By 2020/21 there will be an additional £175,000 available per person to pass assets tax free. This means a couple can pass £1 million tax free on the proviso that certain conditions are met.
It is possible for the property to be left via a trust (the benefit being that the grandchildren do not become absolutely entitled to the property at 18). This adds an additional layer of complexity, and the additional allowance would not be available if left to a discretionary trust (but would if it were structured as an interest in possession trust).
If you are considering leaving money to grandchildren, or have an Estate that is likely to attract inheritance tax please feel free to contact us.
This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.
The information was correct at time of publishing but may now be out of date.