If you are considering giving a gift to a loved one, you should be aware of the myths that exist which could lead to your gift not being deemed ‘valid’, the consequences of which can be expensive.
It is surprising how many people believe that if you make a gift, you need only need to survive seven years, irrespective of the size of the gift, for it not to be subject to inheritance tax. Another commonly held belief is that you can give away £3,000 a year, no matter how much money you have.
For people in need of care, gifting is more complex. In these circumstances, making gifts can have serious unintended complications: The gift could be declared invalid and the person who made the gift could still be treated as owning that asset with regard to means tested benefits and care fees. This means they could lose their rights to benefits or have to pay care fees even though they have no money to do so.
Making gifts when dealing with your own money can be complicated enough – but what if you are looking after someone else’s financial affairs?
Gifting on behalf of someone else can cause more problems than you would expect as there are certain things to think about before any gift is made. You must consider if you have the authority to make a gift on behalf of someone else i.e. are you their attorney by way of a Power of Attorney or a Court appointed deputy? To make matters more complicated, the rules on gifting are different depending upon which type of Power of Attorney you have or whether you are a court appointed deputy.
Generally you are only entitled to make very small gifts at what are considered ‘normal times’ such as a birthday, housewarming or for a religious festival. Almost all other gifts would need the consent of the Court of Protection. This could be not only due to the size of the gift but because the gift is for the attorney/deputy themselves.
If you are making a gift on behalf of someone else, it is important that the gift is made in their best interest and not the best interests of yourself as their attorney or deputy, or the person who’ll be in receipt of that gift. It can be hard to prove why giving away assets is best for someone, but there are some good reasons for doing so.
The Court will want to know that the person making the gift will be left with enough funds for their own needs. They will also want to know “why now” and what tax consequences there could be. The explanation of “Mum would have wanted me to have it” is not enough. If an inappropriate gift is made, however innocent, the Office of the Public Guardian can investigate and, if they are not happy, apply to the Court of Protection to remove you from your appointment as attorney or deputy.
However, there is still a certain amount of inheritance tax planning that is allowed without a court order, but it is only possible under very specific circumstances. To understand what is allowed, it is best to seek legal advice. This is especially important as many accountants and financial advisors will suggest gifts are made and not appreciate the restricted ability of an attorney or deputy to make them.
Gifting can be a very complex area, especially for those who are looking after someone else’s affairs. Therefore, it is important to ensure that any gift is valid and made appropriately. If you are an attorney or deputy and would like advice on what you are and are not able to do, don’t hesitate to get in touch with us at Moore Blatch. If a Court order is needed, we can make that application for you. For further information please contact Fiona Heald on 01590 625866 or Peter Stagg on 01590 625863.