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Is now the time for you to make lifetime gifts?

One of the main ways to reduce the inheritance tax (IHT) payable on death is to transfer assets during life to avoid them becoming part of the estate. Could now be the time to make lifetime gifts?

Last updated: 1 September 2020

Lifetime gifts will only escape IHT fully if the donor survives for the next seven years – it will then be considered a Potentially Exempt Transfer (PET).

Any ‘failed’ PETs which are not already covered by the nil rate band of £325,000, and where the donor survives for three or more years, are subject to tapered rates of IHT.

The main consideration which often puts people off of making large lifetime gifts is the capital gains tax (CGT) payable on the transfer. The gain is calculated on the basis that the open market value has been received for the asset or assets. In instances where the gift isn’t survived by at least seven years, it’s then possible to end up paying both IHT and CGT on the gift.

Any gains not exceeding the annual exemption - £12,300 for 2020/21 - won’t be subject to CGT, and this in itself gives you further planning options, particularly for married couples.

COVID-19 has caused significant uncertainty which will continue to unsettle the stock market, property prices and the wider economy. Anyone who’s been considering lifetime gifts might find the values of the assets in question are lower where there’s been a drop in the market. Values will be easy to establish for listed investments, but for other assets a valuation will be required. For valuations to be accepted by HMRC they’d need to be accurate with robust evidence to support the valuation. 

Now, while the markets remain unpredictable, could be the perfect time to consider your estate planning options.

About the author

Richard Pott

+44 (0)20 7556 1295
pottr@buzzacott.co.uk

Last updated: 1 September 2020

Lifetime gifts will only escape IHT fully if the donor survives for the next seven years – it will then be considered a Potentially Exempt Transfer (PET).

Any ‘failed’ PETs which are not already covered by the nil rate band of £325,000, and where the donor survives for three or more years, are subject to tapered rates of IHT.

The main consideration which often puts people off of making large lifetime gifts is the capital gains tax (CGT) payable on the transfer. The gain is calculated on the basis that the open market value has been received for the asset or assets. In instances where the gift isn’t survived by at least seven years, it’s then possible to end up paying both IHT and CGT on the gift.

Any gains not exceeding the annual exemption - £12,300 for 2020/21 - won’t be subject to CGT, and this in itself gives you further planning options, particularly for married couples.

COVID-19 has caused significant uncertainty which will continue to unsettle the stock market, property prices and the wider economy. Anyone who’s been considering lifetime gifts might find the values of the assets in question are lower where there’s been a drop in the market. Values will be easy to establish for listed investments, but for other assets a valuation will be required. For valuations to be accepted by HMRC they’d need to be accurate with robust evidence to support the valuation. 

Now, while the markets remain unpredictable, could be the perfect time to consider your estate planning options.

Speak to an expert 

If you’re considering making lifetime gifts, we can look at the tax position before you take any action, either as a standalone transaction or as part of an overall estate planning review. 

Get in touch now to consider your options.

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