Client Guide: Gifts
It is not uncommon for people to consider giving away some of their assets, whether this be money, antiques, jewellery or even their home to family members later in life.
There are many reasons for people considering this, but, often making the gift doesn't achieve the intended aims and can have some unhappy unforeseen consequences.
What you might be looking to achieve when making a gift
Ensure a particular person receives a particular item.
Avoid inheritance tax being paid in relation to the assets you give away.
Obtain relief from worry about the responsibility of owning a certain asset such as having to insure it or maintain it.
Avoid certain assets being taken into account for means-testing in relation to any long term care which may be needed in future.
Reduce any delays in dealing with your assets on your death.
Enable someone else to deal with your assets if you lose the capacity to deal with them yourself.
Allow the donee to have money at a stage in his life when he needs it most instead of having to await your death.
The risks in giving assets away:
You lose control of the asset. If you give away your home, you could potentially lose the right to live there and this could ultimately mean that you are homeless. If you subsequently want to downsize or realise some capital to make alterations or adaptations to the property or to pay for you to receive care at home, this may not be possible. Consider:
- What happens if relations with the new owner deteriorate? As you no longer own the property, the recipient could sell the asset without your consent and you would not receive the proceeds of sale
- What if the new owner gets divorced and the property you gave to them has to be sold as part of their divorce settlement?
- What happens if the new owner suffers financial difficulties and the property you gave to them has to be sold to settle their debts?
- What happens if the new owner of the property has an accident and is not able to deal with their affairs and someone else has control of the property?
- What happens if the new owner dies and the people who receive it under his will such as a spouse or partner or children decide to sell the property or have arguments over what to do with it?
- Might giving away cash or other assets affect your future standard of living?
- If you are looking to avoid the gifted assets being taken into account in any means-testing for care fees, will this be effective? When considering an application for funding, local authorities look at your intention when you gave the assets. With increasing pressure on the resources of Local Authorities, their scrutiny of gifts is likely to increase in future.
- If you give away assets and cannot afford private care fees, you are reliant on the local authority for care required in future and the level and quality of care can vary.
- Might the gift have a detrimental impact on the person receiving it such as reducing entitlement to means-tested benefits, tax credits etc?
Do the benefits of making the gift outweigh the risks in making it?
Tax issues to consider include:
- There may be no Inheritance Tax saving if you retain any benefit from the asset, such as remaining living in your home rent free or keeping antiques you have given away in your home.
- There could be an Inheritance Tax liability for the beneficiary of the gift to pay if you do not survive seven years from the date of the gift.
- The gift itself may be free of inheritance tax but it may throw the burden of tax unfairly on to other beneficiaries.
- Stamp duty and other administrative costs may be incurred in relation to transferring property to another person.
- In relation to your home, the benefit of Principal Private Residence Relief for Capital Gains Tax may be lost.
- There may be other adverse Capital Gains Tax implications if the asset you are giving away has increased in value significantly while you have owned it.
Other issues to consider:
Could making the gift have an adverse impact on relationships within the family and cause conflict?
- If you transfer assets to certain people now, do you need to equalise any gifts by providing for other beneficiaries in your will and is your estate large enough to do this?
- If you own your assets jointly, what impact will giving your share away have on the joint owner?
As you will appreciate from this note there are many things to consider before giving away assets, in particular your home, to someone else.
If you do think that giving away assets may be appropriate please contact us to discuss this further. We can consider with you the advantages and disadvantages and the method most suitable for achieving your aims.
It may be that many of your concerns can be dealt with through a combination of your will, putting in place a Lasting Power of Attorney and considering more limited gifts during your lifetime.