Making financial gifts during your lifetime (Part 2)
In an earlier article, Deborah Adams, head of private client department with Parnalls in Launceston, explained how making gifts of money or property during your lifetime could help reduce the inheritance tax payable on your estate when you die. In this article she looks at how making potentially exempt lifetime transfers, under what is known as the ‘seven-year rule’, could further assist in reducing your inheritance tax liability.
To view the earlier article, please click here https://www.parnalls.com/making-financial-gifts-lifetime-part-1/
‘The potentially exempt transfer rule allows you to make gifts during your lifetime in unlimited amounts and, provided the gifts in question were made seven or more years before you die, they will be exempt from inheritance tax. If you fail to survive for seven years but manage to live for at least three years after the gifts were made, any inheritance tax that needs to be paid on the gifts may be reduced on a sliding scale, depending on the total value transferred’, says Deborah Adams.
To be effective for inheritance tax planning purposes, you must not receive a benefit from anything that you give away as a gift in reliance on the potentially exempt transfer rule. So, for example, you cannot give away a rental property and then carry on receiving the rent from it. You also cannot give away your main residence and continue living in it, unless you pay a market rent to the person you have given it to and pay all bills related to the property.
Anything you give away may be subject to capital gains tax if you have made money on it during your period of ownership. Say, for instance, you bought a rental property for £150,000 several years ago and it is now worth £250,000, if you choose to give the property away you will have to pay capital gains tax on the gain of £100,000, although you will be able to deduct an annual capital gains tax exemption, together with any allowable expenses incurred during your period of ownership.
There is a potential trap where both capital gains tax and inheritance tax may become payable. For example, if you give away your home (on which you have made a gain), you would be liable for capital gains tax; if you then die within the next seven years, inheritance tax may be payable.
Who pays the tax if I die within seven years of a potentially exempt transfer being made?
If the value of the gifts you have made is less than your nil rate band when you die, there will be no tax to pay on the gifts; however, the tax-free amount available to anyone else who stands to benefit from your estate once you die will be reduced accordingly.
If the value of the gifts you have made is over the nil rate band allowance then inheritance tax on the gifts will become payable. The persons primarily responsible for this tax are the recipients of the gifts. Because of this, you might consider taking out insurance for a seven-year term to cover the tax liability that may arise if you die within this period.
Do I need to change my will?
When making lifetime gifts you should review your will. You can, for example, change your will to stipulate how any tax arising on the gifts after your death should be dealt with. You can also include a provision that takes into account any gifts you have made during your lifetime, so that an individual’s share of your estate is effectively reduced by the value they have already received.
Can I give away assets so that I do not have to pay care home fees?
Giving away assets, by whatever means, as an attempt to avoid paying care home fees is not advisable. Where there has been a deliberate attempt to reduce the value of your assets to avoid paying care home fees, your local authority has the power to effectively ignore the gifts you have made and require care home fees to be paid by the recipients of the gifts.
If you are part of a couple, you might consider giving away your respective shares of the family home by putting them into a trust, which would provide for the share originally owned by the first of you to die, to be protected from attack in the event the survivor needs to go into a care home at some point. Putting such an arrangement in place will, however, require specialist advice.
What else do I need to consider?
It is never a good idea to give away your main asset or leave yourself without a safety net for the future. Any gifts should be considered carefully and only made if your standard of living will not be adversely affected and your remaining assets will be sufficient for your needs, even if your circumstances change.
For further advice on lifetime gifts, or any other trusts, estates or probate matter, please contact Deborah Adams on 01566 772375 or email firstname.lastname@example.org
KATHERINE FLASHMAN KITSON CELEBRATING 25 YEARS AS A DIRECTOR OF PARNALLS
Do you know the difference between…
When to consider appointing a professional attorney
Should I get a cohabitation agreement?
The Need for Updating Wills
The Right to Make Noise
Ill-health pension transfer not liable for IHT
Legal Time Limits - why so important?
Would you pay a premium for a south-facing garden?
Video-witnessed wills to be made legal
New Planning Relaxation Is Not the Whole Storey
How to minimise delays in obtaining Grant of Probate
Could you benefit from the Green Homes Grant?
A SHOCK TO THE SYSTEM: new electrical safety regulations for residential tenancies
Property of Cornish residents who die without a will goes to Prince Charles
Does your lawyer progress your accident claim efficiently and provide you with a personal and professional service? Can i change solicitors for my accident claim?
What effect could the new changes to stamp duty have on property sales?
Preparing to sell your Launceston property
Staying safer in video meetings
Making Sure Your Great New Home Comes With Clean Air
Property Market Re-Opens in England
Coronavirus: Wills and Powers of Attorney FAQ
Medical Care Received Not Up to Scratch?
Had an Accident in Someone's Home?
Accident or Injury Involving a Dog?
Social Distancing No Obstacle for Parnall's Mobile Document Signing Team
Coronavirus (COVID-19) and Commercial Property Legal FAQs
Rent Charge Suspensions: Protecting Your Interests
Been Asked to Sign an Employment Settlement Agreement? Seek Advice Urgently...
Services Update: Continuity of Legal Service Provision
Advising You in Uncertain Times
Could carelessness on social media land you in court?
Is an electronic signature on a commercial property document acceptable?
What happens when there is no health & care LPA in place
Social Media Training for Businesses
Information to gather for your probate solicitor
Gazundering, what it is and how to avoid it
Relief from forfeiture – what happens if the tenant forgets to pay the rent?
Not so safe at work - compensation for an accident at work
New organ donation law: giving you control
Running a business from home
Have nude photos of you or your teenager been posted online?
Landowners’ rights and the Electronic Communications Code
Building in your back garden
Christmas is a time for giving (and inheritance planning)
Buying the freehold of your leasehold house
Redeveloping an empty pub for commercial use
Why it takes time to obtain the Grant of Probate
Social Media: The unconscious privacy threat
Is your reputation being threatened?
Making a will after your spouse or partner has died
Interns celebrate completion of internship at solicitors
Selling your home in a flat market, some top tips
Claiming compensation for a serious road traffic accident
New Media and Communications Court list reflects surge in internet defamation claims by Laura Baglow
Has your personal information been shared without your permission?
Planning your escape to the country, what you need to consider – part 2
Government consultation on new national model for shared ownership
Choosing a partnership structure
Planning for what happens when you die by Deborah Adams
Changes to legislation could offer protection for tenants in the private rental sector
Move to the country - Part One
The risks of DIY probate
Will your septic tank still be legal in January?
The death knell for ‘kiss and tell’?
Making a will when you retire
Selling your property at auction
Not looking so good - your guide to compensation for botched non-surgical cosmetic procedures
New threshold of seriousness in defamation proceedings
Legal considerations when building a granny annex
Choosing the right person for your power of attorney
Formal Interviews - Do you need legal representation?
Privacy rights and aerial images
Trustees’ duty to give information to beneficiaries
Five problems with a leasehold property
Taking your first commercial lease
Is your organisation protected from employee social media legal risk?
Have you been targeted by negative social media posts?
Farmers be alert when being inspected
Help for House Sellers?
Don’t let your digital assets end up in a digital grave
Valuing an estate for probate
Development proposals and your local authority search
What can you do if your child is injured in a serious accident
NetRights welcomes new protection for social media users
SHOULD I GET A LAWYER FOR A SPEEDING OFFENCE?
Supreme Court recognises that social media is a “casual medium” in libel battle
Choosing the best conveyancer who is right for you
Making a will after a second or subsequent marriage
Option or promotion agreement – which is best for landowners?
Anonymous pub and restaurant online reviews leave a bad taste
Have you had an accident involving a horse?
Help to Buy – beware of some cracks in the structure
Understanding Lasting Powers of Attorney
Changes to Energy Performance Certificate for Landlords
Had a cycling accident? Your route to obtaining compensation
New year, new home: tips to sell your home in the New Year
Tax Planning for your inheritance
Hearing loss: when your employer may be liable
Buying a home for your retirement, five things you need to consider
Farmers plan to diversify after Brexit
Ministers press ahead with probate fee shake-up - reports BBC News
Botched dental treatment? You may be entitled to compensation
Why a Health and Welfare Power of Attorney is a good idea
Will the new charge on building developments in Cornwall affect you?
Energy Performance Certificates – Do They Matter?
HMRC Challenging Stamp Duty Land Tax Payments
Ben Mitchell qualifies as a solicitor
The potential implications of Brexit on employment law
Appointing a guardian for your children
Houses in multiple occupation – new rules from October 2018
New Agriculture Bill published
Will Brexit affect my pension?
Dreaming of a holiday home? Sort out the legals before putting your feet up
Lasting Power of Attorney by Deborah Adams
Settled status after Brexit by Alexis Hager
How to choose an executor to administer your estate when you die
How overage agreements can boost profits from your land
Top tips for first-time buyers
How Could Brexit Affect My Farm?
Wills & Succession in Spain by Deborah Adams
Brexit – an international and local view by Alexis Hager, Litigation
Capital gains tax - important facts for non-residents of the UK
Buying a home: the importance of making sure the seller is entitled to sell
Changing a will after someone has died: it is possible and it could save you money
Your responsibilities when you have people working in your home
Sad passing of Battle of Britain pilot who served with Parnall family member
Considerations when buying a heritage property
Disciplinary proceedings at work: guide for employers
Employers should have a disciplinary process in place, but just following this may not be enough to avoid falling foul of the law and exposing yourself to the risk of an employment tribunal claim.