Making Gifts of Assets

As we get older, future planning becomes increasingly important to us, especially if we have loved ones.

As we get older, future planning becomes increasingly important to us, especially if we have loved ones. Giving gifts, such as property, investments or cash may seem like the perfect way to ensure the ones closest to you are looked after. However, it is important to understand the tax implications and legal ramifications to ensure your generosity achieves the desired outcome while protecting your own financial security.

This article takes a look at gifting assets and the things you need to consider.

The Taxing Side of Gifting

In the UK, when you gift assets, it can have tax implications both for the person giving the gift and the recipient, influenced by what's being given and its value. Let's delve into some essential aspects to consider:

Capital Gains Tax (CGT): This applies when you dispose of an asset for a gain (selling it for more than you purchased it for). If you gift an asset that has increased in value, you may be liable for CGT on the gain. However, there are exemptions for gifts to spouses or civil partners, and annual gift allowances for other recipients . The Low Incomes Tax Reforms Group has a useful article on Capital Gains Tax.

Inheritance Tax (IHT): This tax is levied on the total value of your estate when you pass away. Gifts made within seven years of your death are generally considered part of your estate for IHT purposes. However, there are exemptions for certain types of gifts, such as small gifts and gifts for normal living expenses . More information can be found on the .Gov website.

Planning for a Smooth Gift-Giving Journey

To navigate the tax implications and ensure your gift is received as intended, consider these planning strategies:

Understand the value of the asset: Knowing the asset's market value helps determine potential CGT liability and whether it falls within any gift allowance thresholds.

Consider the timing of your gift: Gifts made more than seven years before your death generally fall outside your estate for IHT purposes. However, this strategy requires careful consideration of your own financial needs and future plans.

Seek professional advice: A financial advisor can help you understand the specific tax implications of your gift based on the asset type, value, and recipient. They can also advise on potential IHT planning strategies to minimise any tax burden on your beneficiaries.

Types of Assets and Considerations

The type of asset you're gifting can also influence your approach. Here are some additional considerations:

Cash: Gifts of cash generally have no immediate tax implications for the person gifting the money. However, large cash gifts may be scrutinised by HMRC (His Majesty's Revenue and Customs) if there's a concern they're being used to avoid IHT.

Property: Gifting a property can be complex. Capital gains tax may apply to the person giving the property, and the recipient may face stamp duty depending on the property value. Seeking legal advice is crucial when gifting property.

Investments: The tax implications of gifting investments depend on the type of investment. For example, gifting shares of a business may trigger CGT for the person gifting the assets, while gifting bonds may have different tax consequences.

Open Communication is Key

Beyond the legalities, clear communication with the recipient is essential. Discussing your intentions behind the gift and their understanding of any potential tax implications helps prevent misunderstandings and ensures everyone is on the same page.

Making a Lasting Impact

Gifting assets can be a powerful way to support loved ones, help them achieve goals, or even contribute to charitable causes. By understanding the tax implications and planning effectively, you can ensure your generosity has the intended impact while protecting your own financial future. Remember, seeking professional financial and legal advice is crucial for navigating the complexities of gifting assets and achieving a smooth and successful transfer.

If you would like to speak to Rachel or a member of the Private Client department, please call us on 01642 244666 and we will be happy to help.