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Martin Lewis Shares Warning to Grandparents Who Want to Gift Money to Grandkids

Martin Lewis Shares Warning to Grandparents Who Want to Gift Money to Grandkids

Martin Lewis, the renowned Money Saving Expert, has issued a critical warning for grandparents planning to gift large sums of money to their grandchildren to avoid unnecessary Inheritance Tax. Speaking on his podcast aired on 24 June, Lewis detailed how grandparents can gift up to £3,000 tax-free annually, with the possibility of carrying over any unused allowance from the previous year for larger sums. Additionally, understanding ‘surplus income’ is essential for those wanting to gift beyond this limit without incurring Inheritance Tax, as explained by tax experts featured in the episode.

Martin Lewis, a household name in financial advice, has once again turned his attention to an important matter affecting many families: Inheritance Tax and gifting money to grandchildren. On the latest episode of his podcast, “Not The Martin Lewis Podcast,” aired on 24 June, Lewis delved into the intricacies of avoiding hefty taxes when grandparents wish to provide financial gifts to their younger family members.

The episode, filled with practical advice from tax experts, underscored the importance of understanding tax-free allowances and the concept of ‘surplus income.’ These insights are crucial for grandparents aiming to make significant financial gifts while minimising their tax liabilities.

Navigating the £3,000 Annual Gift Allowance

Martin Lewis began the episode by addressing a common question: How much money can grandparents gift without incurring Inheritance Tax? According to UK tax laws, individuals can gift up to £3,000 each year without any tax implications. If this allowance hasn’t been fully utilised in the previous year, it can be carried over, effectively allowing a tax-free gift of up to £6,000 in the first year of gifting.

Understanding Surplus Income for Larger Gifts

For those wishing to gift beyond the £3,000 annual limit, the concept of ‘surplus income’ becomes particularly relevant. Kari Mellon, a tax adviser from Opes Tax, explained that surplus income refers to any remaining income after all living expenses and tax liabilities have been accounted for. This surplus can be gifted without affecting the standard of living of the giver, and importantly, without incurring Inheritance Tax.

Rebecca Benneyworth, another tax expert featured in the episode, further clarified how to determine if one has surplus income. She advised calculating all annual income, subtracting all expenses including major purchases like a new car or a holiday, and any tax liabilities. The remaining amount, if any, qualifies as surplus income and can be gifted.

The Importance of Proper Documentation

Lewis and the experts emphasised the necessity of proper documentation when gifting surplus income. Detailed records of income, expenses, and the surplus should be maintained to provide evidence if needed, ensuring that the gifts are indeed tax-free. This meticulous record-keeping is vital in case of any queries from tax authorities.

What Is Inheritance Tax?

Inheritance Tax (IHT) is a tax on the estate—property, money, and possessions—of someone who has died. The current threshold for IHT is £325,000. Anything above this threshold is subject to a 40% tax unless the estate is left to a spouse, civil partner, or charity. Moreover, if the estate includes a home gifted to children or grandchildren, the threshold can increase to £500,000.

Planning Ahead to Minimise Tax Liabilities

The podcast also highlighted the importance of planning ahead to minimise Inheritance Tax liabilities. By making regular, smaller gifts and utilising allowances like the annual £3,000 tax-free gift and surplus income, grandparents can significantly reduce the tax burden on their estates.

Common Pitfalls and How to Avoid Them

Lewis warned against common pitfalls, such as failing to document gifts properly or misunderstanding the rules around surplus income. He advised seeking professional financial advice to ensure that all gifts are compliant with tax laws and to avoid any potential issues.

In summary, Martin Lewis’s recent podcast provides invaluable guidance for grandparents looking to gift money to their grandchildren while avoiding Inheritance Tax. By understanding and utilising the £3,000 annual tax-free gift allowance, carrying over unused allowances, and accurately calculating and documenting surplus income, grandparents can significantly reduce their tax liabilities. This episode serves as a crucial reminder of the importance of planning and documentation in financial gifting.

“Understanding how to gift wisely and legally can make a significant difference in ensuring your loved ones benefit fully from your generosity.”

– Martin Lewis

Are you planning to gift money to your grandchildren? Ensure you’re doing it tax-efficiently by consulting with a financial adviser today. Don’t let your generosity become a tax burden.

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