My children and grandchildren are coming to spend Christmas with me and I know my daughter is hoping that I’ll give large cash gifts to everyone. She keeps telling me that I need to give most of my money away so they don’t have to pay a lot of tax when I die. Is she right? I don’t want to risk not being able to pay for care if I need it later.

Lowestoft Journal: Richard Barker, chartered financial planner with Smith & PinchingRichard Barker, chartered financial planner with Smith & Pinching (Image: Smith & Pinching)

Richard Barker of Smith & Pinching responds:

There is always a delicate balance between giving away your wealth to keep Inheritance Tax (IHT) to a minimum and retaining enough funds to pay for things like care. I think you may find a detailed discussion with an independent financial adviser useful to allow you to judge what tax might be payable on your death and what resources you need to support you as you grow older.

Let’s firstly look at gifts. You have a range of gift allowances to use where the money will immediately be considered outside your estate for IHT purposes, including annual gifts and special gifts for weddings. Beyond the allowances, any gifts you make may still be fully or partly counted when valuing an estate to determine any IHT liabilities if they are made within seven years of your death.

The Nil Rate Band (NRB) is the amount you can give away or leave on your death that is zero-rated for IHT. Every individual has a basic NRB of £325,000. On top of that, you may qualify for up to an additional £175,000 of NRB if you leave your home to your children or grandchildren on your death. If you have or had a spouse or civil partner, the surviving partner can benefit from any NRB not used on the first partner’s death. In practice this means that a single individual with children or grandchildren can benefit from a zero-rated allowance of up to £500,000 and a couple up to £1 million.

The question of how to fund care, should you need it, is a complex one. It may be worth you looking at a range of scenarios with an adviser, using Lifetime Cashflow Planning. This will help establish the possible erosion of your estate through care fees and allow you to gauge what amounts you can safely give away and still benefit from many years of care.

If you were happy for her to be involved, you could include your daughter in any discussions with an adviser so that she can understand the implications of any gifts you might make. However, it is your decision…

Any opinions expressed in this article do not constitute advice.

For more information, please visit www.smith-pinching.co.uk