Graham Coy appeared on BBC Radio Solent this morning. He is one of the firm’s most experienced solicitors and Partner of our London office. He was invited on to discuss inheritance with presenter Julian Clegg.
The conversation was prompted by remarks from Housing Minister Gavin Barwell, who recently suggested that grandparents should skip a generation when making a will and leave their houses to their grandchildren. This would help to ease the housing crisis in this country, Barwell claimed.
Graham said that it was an interesting idea and it does make sense tax-wise as people could save on inheritance tax by skipping a generation.
JC: Julian Clegg
GC: Graham Coy
JC: Graham, what do you think? Should the grandparents disinherit the children?
GC: It is an interesting idea. In some ways it makes sense tax-wise because if grandparents, for examples, leave money that otherwise they would be leaving to their children but leave it to their grandchildren some inheritance tax is saved. It skips a generation and therefore, only one lot of inheritance tax is paid instead of two.
JC: But that assumes of course that the children don’t spend it themselves before they pass it on?
GC: Well, I think the idea is rather than money being passed to the children, it goes on to the grandchildren. So the children never get the money so it is not there to be spent. It will save inheritance tax but there are traps. For example, if grandparents want to leave money or property to their grandchildren to help them get on to the housing ladder, great, it is a good idea. They must make sure that the gift is completely without conditions. If the grandparents retain what is called any benefit in money that they pass on, for example they say it is a loan, it won’t be effective for inheritance tax purposes.
JC: Just explain that to me a bit more…
GC: So if, for example, grandparents say they want to help their grandson to be able to get into the property market and they give him some money, let’s say they give him £50,000 but they say they expect it back in a certain period of time or we will have a share in your house, that is not effective for inheritance tax purposes. So, when the grandparents die, they will still pay tax on the £50,000.
JC: Right, but clearly the fact it is in their will, by the time the money gets handed on, they can’t ask for it to be paid back can they. So grandparents pass on a whole load of money to grandchildren in their will, they die, who gets…
GC: What I think was being suggested, and it may be that I am mistaken, is that grandparents make a lifetime git to their grandchildren. If they do that and it is absolute, there are no conditions, no strings attached and it works for tax purposes, it helps the grandchildren. If they leave it in their will, absolutely no problem at all, there is no inheritance tax.
JC: Well I was assuming, in Gavin Barwell’s case, his mother is leaving her estate and three quarters of a million-pound home to his sons. So, there is no during lifetime loan or anything, it is only happening when she dies. So maybe we were both across purposes there.
GC: So that would be effective for inheritance tax purposes and it saves an extra bulk of tax when the children die, so that would be effective. I was looking at what happens in the grandparents’ lifetime. So what has been suggested, absolutely effective for inheritance tax, it will work and help the grandchildren. But there is no guarantee when the grandchildren will actually receive that money. So what is actually happening now, people live longer, grandparents live longer and are thinking ‘shall we give some money to our grandchildren and help them get on the housing ladder’. Which we all know is very difficult these days, especially in the south where properties are so expensive. What they can do, they can do that and it is effective for inheritance tax purposes as long as they live seven years after the gift is made but they must have absolutely no conditions attached to it. The other thing the grandparents need to bear in mind of course is that people are living longer. We all know how expensive care homes are and so on. Once the money has gone, it has gone.
JC: Yes, I am looking at some emails here saying “do something otherwise you will be spending it on a care home”. Well, Graham, thank you very much indeed for that, very good to have you. Graham Coy from Stowe Family Law.
Click here to listen to the interview (available for a limited period).