Lifetime Gifting

Lifetime Gifting

What is Lifetime Gifting?

Instead of leaving assets, cash or possessions in your will, or via a Trust. You can opt to gift items directly to your beneficiaries. This could be advantageous for a range of reasons. It also poses some risks to both the gifting party and the receiving party. If Gifting is done in advance, it can be a helpful way to reduce the size of your estate, resulting in a reduced Inheritance Tax risk.

What can you gift?

Our key summary and some examples .

Money

Assets

Possessions

Gifting FAQ's

Is gifting legal?

Yes, gifting is a perfectly legitimate way to transfer elements of your estate to your loved ones.

Do you pay tax on gifts?

In certain circumstances, yes. Most gifts are classified as PETs - Potentially Exempt Trasnfers, meaning there may be circumstance where there is no tax required but it's important to check beforehand.

Can I gift my family home to my children?

Yes, you can. However, this will open up a range of potential risks. Risks that wouldn't otherwise be present if the property was held in your own name. Historically gifting the family home was a tactic to try and mitigate the costs of care, in reality that does not have the desired effect.

Taxation & Gifts - The 7 Year Rule

The tax treatment of gifts is vital to understand before making decisions.

Potentially Exempt Transfers

Gifts which may become exempt from IHT depending on the circumstances

Gifts with Reservation of Benefit

Gifts where the original owner of the gift retains some of part of the benefit attached to the gift.

Scenario 1 - Cash gifting

Let us take the scenario of a cash gift being given to a son by his parents with the intention of purchasing a home.
This would fall neatly into the category of Potentially Exempt Transfer.

If the parents, who gifted the money live for another 7 years from the day the gift was made, the gift would be considered to have met the time threshold and the gift would pass without any tax implication whatsoever.

In the event they passed prior to the 7 year mark, the circumstances change. It would now depend on the final value of the parents estate and how much time has passed as to whether or not any tax would fall due.

From the moment the gift is made, there is a clock ticking, as the years pass, the taxable rate drops commensurately over the years, from 40% to 0% at Year 7.

If the parents passed away 6 years into the gifting cycle, the calculation would need to take into account the total value of the parents estate (including the gift made to their son 6 years prior) If the total amount exceeds the parents maximum tax threshold, the amount associated to the gift would be charged at the 6 year rate, which is 8%.

Scenario 2 - Gifting a car

In this instance, a gift of a classic car has been made. However, the gifting party wishes to be able to still retain use the car and keeps the car at home in their garage.
By doing this, they are "reserving the benefit" of the item.
This is known as a Gift with Reservation of Benefit (GROB)

The only transfer that has happened is one on paper, and materially the party who technically owns the vehicle has no direct use or full control of the item.

For tax purposes, this would be treated as if the gift had never been made in the first place. It would form part of the gifting parties estate for the IHT calculation and could therefore incur IHT against the value of the item, if the estate breaches the maximum IHT threshold for the individual.

However, if the gifting party fully releases the gift, resigning access and utility of the item, this could now be considered a PET, the 7 year rule would then apply as if it were any other type of Potentially Exempt Transfer.

Scenario 1 - Cash gifting

Let us take the scenario of a cash gift being given to a son by his parents with the intention of purchasing a home.
This would fall neatly into the category of Potentially Exempt Transfer.

Scenario 2 - Gifting a car

In this instance, a gift of a classic car has been made. However, the gifting party wishes to be able to still retain use the car and keeps the car at home in their garage.
By doing this, they are "retaining the benefit" of the item.
This is known as a Gift with Reservation of Benefit (GROB)

The only transfer that has happened is one on paper, and materially the party who technically owns the vehicle has no direct use or full control of the item.

For tax purposes, this would be treated as if the gift had never been made in the first place. It would form part of the gifting parties estate for the IHT calculation and could therefore incur IHT against the value of the item, if the estate breaches the maximum IHT threshold for the individual.

However, if the gifting party fully releases the gift, resigning access and utility of the item, this could now be considered a PET, the 7 year rule would then apply as if it were any other type of Potentially Exempt Transfer.

Gifting Properties & Care

What's the impact?

Myth: busted

Transferring the family home to the children will offer little to no benefits generally, it may stand to make your circumstances worse by introducing risks that were not present prior to the transfer.

Seek professional advice before making an decisions.

Myth: busted

Care Fees & Gifting FAQ's

Does transfering the home remove care fee risk?

If you continue to live in the property, there is no protection offered by transfering the home to anyone else when it comes to care.

Can I gift a second property to mitigate care fee risk?

Yes, that would be possible on the assumption that the 2nd home is not used by the original owner. Be warned, this can incur capital gains taxes on 2nd homes that trigger at the moment of sale.

What are the alternatives to gifting?

There are tools at your disposal. Trusts, combined with Land Registry alterations can provide adquate re-positioning of the estate to mitigate some care fee risk. It is imperative that there are other leading factors for why a trust would be used or any attempt to mitigate care fees solely would be considered deliberate depravation of assets.

Lifetime Gifting

Lifetime Gifting

What is Lifetime Gifting?

What can you gift?

Money

Assets

Possessions

Gifting FAQ's

Taxation & Gifts - The 7 Year Rule

The tax treatment of gifts is vital to understand before making decisions.

Potentially Exempt Transfers

Gifts with Reservation of Benefit

Scenario 1 - Cash gifting

Scenario 2 - Gifting a car

Scenario 1 - Cash gifting

Scenario 2 - Gifting a car

Gifting Properties & Care

What's the impact?

Care Fees & Gifting FAQ's

Care Fees & Gifting FAQ's

Find out more about Care Fees and their impact here

Speak to an advisor about gifting today

Speak to an advisor about gifting today