Outright gifts

By Tolley in association with Emma Haley at Boodle Hatfield LLP
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The following Trusts and Inheritance Tax guidance note by Tolley in association with Emma Haley at Boodle Hatfield LLP provides comprehensive and up to date tax information covering:

  • Outright gifts
  • Inheritance tax (IHT)
  • The PET
  • The IHT cost of an outright gift
  • IHT anti-avoidance provisions
  • Capital gains tax (CGT)
  • Income tax

An outright gift is the most straightforward type of gift. It simply involves the outright transfer of property from one person to another with no conditions attached.

 

An outright gift is the most straightforward type of gift. It simply involves the outright transfer of property from one person to another with no conditions attached.

This type of gift is most suitable for clients who want to pass over modest amounts, or give to responsible and capable adults whom they trust to take the property as their own, to do with as they wish.

Outright gifts are less suitable for children and vulnerable people, or for assets over which the client wishes to retain some control. In those cases, a gift into trust will be more appropriate than an outright gift. However, trusts come at a cost and with an administrative burden. Therefore, outright gifts are extremely common. See the Why do people use trusts guidance note for an introduction to the trusts regime.

This guidance note focuses on inheritance tax but other taxes are mentioned briefly for completeness.

Inheritance tax (IHT)

IHT is not strictly a charge on gifts but is based instead on the concept of a ‘transfer of value’. A transfer of value is a disposition which reduces the value of a person’s estate. An outright gift is a clear example of a transfer of value and so the two terms tend to overlap.

IHTA 1984, s 3

However, a gift connotes some donative intent which is not implicit in the definition of a transfer of value. The IHT legislation makes specific provision for this because dispositions which have no gratuitous intent are not transfers of value, nor are dispositions for the maintenance of the family.

IHTA 1984, ss 10–11

IHT is charged on ‘chargeable transfers’. These are transfers of value that are not exempt. A number of exemptions apply to outright lifetime gifts (see the Exempt transfers guidance note). The potentially exempt transfer (PET) is considered further below. The other

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