Making Gifts During Your Lifetime
There are many things to consider when you make a gift of money or property during your lifetime. The main considerations are:
Inheritance Tax
Capital Gain Tax
Deliberate Deprivation
Inheritance Tax
A gift can be:
something that has a value – e.g. a house or money; or
a loss in value if you transfer something – e.g. if you sell your house to someone for less than its value, the difference between its value and the sale price is a gift
There are some exemptions:
an annual exemption of £3,000 for each tax year – you can carry forward any unused exemption to the next year
small gifts of £250 – you can give as many gifts of up to £250 per person during the tax year – but you can’t use another exemption on the same person
gifts for a wedding or civil ceremony – up to £1,000 per person; £2,500 for your grandchild or great-grandchild and £5,000 for your child
payments to help with living costs – e.g. a child under 18, or an elderly relative
payments out of your income which do not affect your ability to maintain your standard of living – e.g. Christmas and birthday gifts
If you give away gifts of more than £325,000 in the 7 years before your death, to someone other than your spouse or civil partner, the recipient(s) of those gifts will be charged Inheritance Tax.
Inheritance Tax is charged at 40% on gifts made in the 3 years before your death.
Inheritance Tax is charged on a sliding scale of 32% to 8% in the 3 to 7 years before your death.
Once 7 years from the date of the gift has passed, the value of the gift is not counted as part of your Estate.
If you give away your house, move out of it, and survive for 7 years, there will be no Inheritance Tax to pay on this gift – you can make social visits to the property and stay at the property for short periods.
If you die within 7 years of giving away the property, then the Inheritance Tax rules apply.
If you carry on living in the property after you have given it away, you must:
Pay the rent at the market rate to the new owner – unless you have given away only a part of the property and the new owner also lives in it
Pay your share of the bills
Live in the property for 7 years
Otherwise, the gift will be known as a “Gift With Reservation of Benefit”, because you have the benefit of living in the property – the value of the gifted property would still be included as part of your Estate for Inheritance Tax purposes on your death, even if you survive for 7 years after making the gift.
Capital Gains Tax
If you are giving away a property which is not your principal primary residence, you may be liable to pay Capital Gains Tax if it has increased in value between the date you acquired the property and the date you give it away.
Deliberate Deprivation of Assets
If your local Council decides you need social care (e.g. care in your home, or moving into a care home) the Council will calculate how much you need to pay towards the care you receive by doing a financial assessment.
If you need to move into residential care, the value of your property could be included in this financial assessment.
If your local authority believes that you have deliberately given away assets (e.g. money or your house) so that they won’t be included in a financial assessment for care fees, they may calculate your fees as if you still owned the assets.
In order to decide whether a gift that you have made was a deliberate deprivation of assets, the local authority will look at:
Whether you knew, at the time of making the gift, that you needed or may need care
Whether a significant reason for making the gift (reducing your assets) was to avoid paying for care
Other examples of deliberate deprivation of assets include:
An increase in spending which is not usual for you, e.g. gambling
Buying possessions, e.g. a car or jewellery, which would not be included in a financial assessment
Timing is important – if at the time you made the gift, you did not anticipate you would need care and support, this may not count as deprivation of assets.
And Finally…
Do not forget that by giving your property away, you are no longer the legal owner of it and could be forced out.
You will have no say in what happens to the property if the new owner decides to sell the property, dies, gets divorced or is declared bankrupt.
If you continue to live in the property and pay market rent to the new owner, the new owner will be liable for income tax on the rent you pay them.
