Gordon’s G&T

With Gordon Brown, it is always a case of give and take. That’s the reality if you don’t structure your gifts properly.

For example, you may be planning large cash gifts to your twentysomething children. Apart from wanting to help them out in life, you’ve been told the gift will reduce your estate for inheritance tax purposes provided you survive seven years. Understandably you don’t want the children to have the money outright so instead you put it into a “discretionary trust”. Unfortunately if the gift is more than the nil rate band (currently £263,000) you have to pay an immediate 20% inheritance tax charge on the excess irrespective of whether you survive seven years.

There’s another trap to watch. For capital gains tax purposes a gift of a valuable asset is treated the same as a sale. You may have to pay tax at up to 40% on the difference between the asset’s current value and the amount you originally paid (i.e. the capital gain). The practical problem is that if you give away rather than sell the asset, you receive no sale proceeds to pay the tax with. Fortunately there is a solution for certain types of gifts.

Finally, if you’ve given away your property, and you still live in it, you could be hit with a triple tax whammy. First, you may be caught by the “reservation of benefit” rules, which mean the house will remain in your estate for inheritance tax purposes. Secondly, if the house is ever sold it won’t benefit from the capital gains tax main residence exemption since you (as occupier) no longer own it. Finally, you may be subject to income tax from next April based on the notional benefit of living in the house rent-free. To ensure your gifts won’t create an unwelcome tax charge, please contact:

Andrew Goldstone
Tel +44 (0)20 7440 7205
andrew.goldstone@mishcon.com