Lifetime Gifts
If you are planning to use Lifetime Gifts for property, assets, and money, contact Rowlinsons today to plan the most tax-efficient way to transfer your wealth to the next generation with minimal impact.
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As part of your inheritance tax planning, you may want to give assets away during your lifetime to reduce the taxable value of your estate. This also allows you to help loved ones out financially and have the pleasure of seeing them enjoy their inheritance.
However, before making a lifetime gift, knowing the rules is essential. You can’t simply give away parts of your estate because there are taxation and legal implications when transferring assets or giving away lump sums of cash.
Rowlinsons Solicitors offer expert advice on navigating the rules around gifting as part of your inheritance tax and estate planning. We’ll help you to make the most of your money and see that your beneficiaries are financially taken care of after you’re gone.
A lifetime gift is made when you give away something of value (cash or assets) to family or friends. It may also be classed as a gift if you sell an asset for less than its market value. For example, if you sell your son the family home for £200,000 but it’s actually worth £250,000, that counts as a gift of £50,000. However, it’s not seen as a gift if the buyer is not related to the seller.
Other transactions which may be considered a lifetime gift include certain life insurance premiums, forgiveness of debt, or paying for something on someone else’s behalf such as holidays or bills. If you share joint ownership with one or more people, and you contributed more than your equal share then that can also be deemed as a lifetime gift.
This means you must keep accurate financial records when making lifetime gifts. This will speed up the probate process for your personal representative after you die. Bear in mind, if any transactions classed as lifetime gifts are not declared there may be an additional 50% penalty on any tax due.
A further consideration concerns future care fees. If an individual gives away assets and is subsequently unable to pay for their care the local authority may investigate any gifting they have made. There is no time limit on this. Where the local authority believes that a gift was given to avoid funding future care fees – known as deliberation deprivation of assets – they can take steps to recover the assets.
Similarly, if they become bankrupt within 5 years of making the gift their trustee in bankruptcy could void the gift.
If you’re in any doubt about how best to manage your financial affairs now to avoid these pitfalls, Rowlinsons Solicitors offers clear, comprehensive legal advice on all estate planning matters including lifetime gifts.
The two types of lifetime gifts are potentially exempt transfers (PET) and gifts with reservation of benefit (GWROB).
Most lifetime gifts to individuals will be PETs. If you are still alive seven years after making the gift it will be exempt from inheritance tax. The full amount of inheritance tax is due if you die within three years and after that the amount of tax reduces each year, known as taper relief.
A gift will be a PET as long as the person making the gift doesn’t continue to receive a benefit from the gift in any way. Otherwise, it is a gift with reservation of benefit.
A GWROB is when someone gives their assets to someone else, usually a family member, but continues to make use of it. This commonly happens with property or a bank or building society account. For example, someone could transfer the legal ownership of the family home to their children but remain living there rent-free.
The 7-year rule doesn’t apply to a GWROB unless the reservation of benefit ended seven years before the person died. The value of the gift will need to be reported and added to the estate value. This value needs to reflect how much it was worth on the day the person died and not when it was purchased.
It’s not always straightforward to work out whether a lifetime gift should be classed as a GWROB. The law around lifetime gifts is a complex area and it’s recommended to seek specialist legal advice prior to transferring any assets.
Having a valid up-to-date will is crucial for all aspects of estate planning. With regards to lifetime gifts, it’s important to keep your will up to date to account for any gifts that may be made during your lifetime so there is no confusion later over missing inheritance.
You may consider transferring an asset into trust during your lifetime. Although this will remove the asset from your estate for IHT, it may trigger a chargeable event which means a charge of 20% inheritance tax on the trust funds. Rowlinson's wills, trusts, and estate solicitors can advise and help with the preparation of wills and trusts to make sure you have the right legal structures in place.
Gifts made to the following individuals or organisations will be exempt from inheritance tax:
An individual can make a gift of up to £3000 per year and it won’t be included for IHT. You can also make as many smaller gifts of up to £250 as you like so long as you don’t combine them with other allowances. You can also use any unused allowance from the previous tax year as long as the current year’s allowance is used first.
The tax-free allowances on wedding and civil partnership gifts are £5000 for a child, £2500 for a grandchild, and £1000 for anyone else.
Another way of lifetime gifting is to make regular payments out of your surplus income. These payments must leave sufficient income for the person making the gift to maintain their usual standard of living.
The wills, trust, and estates team at Rowlinsons Solicitors has extensive experience in helping individuals make tax-efficient lifetime gifts. The unparalleled expertise we show in this area has gained us the Excellence in Private Client Award from the National Law Society in 2018. Rowlinsons Solicitors was also awarded Highly Commended in the Boutique Private Client Team of the Year category at the British Wills and Probate Awards 2023.
Our team includes some of the most prominent and renowned Wills, Trusts, and Estate Planning Solicitors in Cheshire and members of STEP (the Society of Trust and Estate Practitioners) further reflecting our technical know-how and expertise in this specialist area of law.
Rowlinsons is a leading full-service law firm in the UK, offering advice on a full range of legal matters. This means we can call on the relevant expertise of our colleagues in other areas such as property and tax law.
You’ll have the dedicated support of a qualified solicitor throughout the entire process, and the peace of mind that you can directly contact them when you need to talk.
Having an efficient plan for lifetime gifts can make all the difference when considering the significant tax implications of assets like property and land. With the team of Lifetime Planning Solicitors in Cheshire from Rowlinsons, you can be sure that your lifetime gifts achieve what you want, without undue losses or surprise tax bills for you or your family.
Our firm of Personal Solicitors is renowned for our commitment to tailored legal advice and excellent client service. We help clients in in Warrington, Widnes, St Helens, Chester, Northwich, North Wales, and across the UK from our offices in Frodsham and Runcorn (Sutton Weaver). We are by your side, and provide legal advice that protects your interests.
Call us today for an initial no obligation call or click here for a call back. We also have meeting facilities in North Wales by appointment.
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