LATEST TWEETS

Find out how you can protect yourself and your business from the legal risks when using social media at our Free se… https://t.co/m41UTUCnWP
Great feature in Business Cornwall Magazine on @rights_net, our social media, internet and media law service… https://t.co/2g8xlBa0Nw
Tomorrow is the day to come and meet some of the team @CornwallBizShow including Laura Baglow, Head of NetRights, o… https://t.co/qM78xnzWPW
Happy International Women’s Day! Parnall history trivia for you: Parnall & Sons was a keen employer of women. On 3… https://t.co/vpjepce8X1

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 adamsd@www.parnalls.com

MORE NEWS

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.

Selling your land through a conditional contract

Why you should always use a solicitor to prepare your will

Putting your legal affairs in order

How to extend a lease on a flat or buy a share of the freehold

Delayed Health Checks

New Marketing Team at Parnalls Solicitors Ltd

Social media: snooping in the recruitment process

A landlord's guide to tenant alterations

Equity release, your questions answered

Short term lettings: avoiding the pitfalls

How to apply for a grant of probate

Are you entitled to a fee refund for your Lasting Power of Attorney?

What to do when someone dies

Business disputes: can they ever be avoided?

Accident at work: what to do and when if you have been injured

Director appointment

What type of will do I need?

Business rates: a financial ticking time bomb (Part 2)

Conveyancing quotes: what you need to know

New appointment in Litigation

Property boundaries and rights of access: what are they and why do they matter?

Mental Health - we can get you the help you need

Business rates: a financial ticking time bomb (Part 1)

Leaving a gift to charity in your will

Parnalls helps two leading Devon organic meat companies to become one

Katherine Flashman Kitson is appointed Governor of St Joseph's School, Launceston

Financing your home purchase (Part 2)

New rules on debt recovery may delay payment of consumer debts

Making financial gifts during your lifetime (Part 2)

Our Guide to Lasting Powers of Attorney for Your Business Interests

Financing your home purchase (Part 1)

Careless replies to pre-contract commercial property enquiries could land you in trouble

Making financial gifts during your lifetime (Part 1)

Property referrals and recommendations - what to consider

World Alzheimer’s Day: Three-step plan to get your legal affairs in order

Legal considerations when setting up a business (Part 2)

How to avoid falling victim to property fraud

What are the key terms that need to be covered in a commercial lease? Part 3

Top 10 reasons to use a solicitor to make your lasting power of attorney

What legal considerations do I need to think about when setting up a business? (Part 1)

Why you need to update your will as soon as you decide to separate or divorce

What are the key terms that need to be covered in a commercial lease?  Part 2

The Bank of Mum and Dad: top tips when lending money to your children  

DON’T ACCEPT 50/50 ON AN ACCIDENT IN A COUNTRY LANE

The importance of insurance when life trips you up

The role of a court appointed deputy

What are the key terms that need to be covered in a commercial lease?

Ten common debt recovery mistakes

How do I know if my relative has the mental capacity to make a will?

Motorcycle accidents - what to consider when claiming compensation

Top tips for pushing your house purchase through as quickly as possible

How does the new inheritance tax perk work?

The ultimate personal injury and accident claim checklist

Jargon-busting guide to Lasting Power of Attorney

10 reasons to appoint a Personal Injury solicitor

What happens when mum or dad are ill and can’t make decisions?

How firms can take advantage of the rise of alternative finance

Should Stamp Duty be abolished?

Teenager paralysed after falling off a horse awarded £3 million in compensation

RBS to pay investors £800 million

Not happy with your accident claim lawyers?

Parnalls expands its litigation team

Hard work pays off for our Trainee Legal Executive.

Katherine Scott Flashman Kitson celebrates 20 years

How will the new Residence Nil Rate Band (RNRB) affect you?

Exciting new business hub unveiled in North Cornwall

Be careful what you post on Facebook

Parnalls rolls out the support at Wadebridge Wheels

New trainee solicitor appointed

Mark Parnall comments on Brexit in The Law Society Gazette