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Parents warned on tax liability for gifts to children

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Parents who have gifted property to their children are being warned they could be landing their loved ones with a future hefty tax bill.

Tax expert Gary Priest, a partner at leading Midlands law firm mfg Solicitors, has issued the alert – saying that the region’s parents must make sure they have all the correct documentation to protect any financial gifts from liability.

That includes second homes which are gifted to children – a move which can trigger capital gains tax because they do not attract the same relief as a main home.

Transferring holiday homes to children’s names is also an issue on Mr Priest’s radar as it means children will still have to pay inheritance tax if their parents continued to use the home - essentially rendering the gift pointless.

Mr Priest said: “Making a gift of property while you’re alive, rather than leaving it in a will, is a perfectly legitimate way to avoid lumbering your loved ones with a big tax bill.

“The problem is that unless these are done properly, they can end up attracting the very bills parents were trying to avoid.”

He added the gift can also be at risk if the child gets divorced, meaning it can be lost in a settlement. Parents therefore consider gifts to trusts but this brings its own tax issues which need to be considered carefully.

Mr Priest, based at mfg’s headquarters in Kidderminster, said parents need to take expert advice before they make a gift so that any tax liability can be appropriately planned for in advance.

“The key thing is to make sure that it’s properly documented that the property was a gift for the intended child or children,” Mr Priest said. “That protects it against family disputes and unexpected demands from HMRC. It’s about ticking every box.

“Parents need to think carefully about how any gifts they make impact on what they have written down in their will. It can change the inheritance liability in their estates.

“Done properly, a gift protects property for loved ones and ensures they pay an appropriate amount of tax. Done without careful advice, they can cause heartache, headaches and hefty bills.”

For advice on gifts email or call 0845 55 55 321.