Giving away your possessions – is it tax efficient?
Audrey, a client rang. “Could I give Jean, a friend of hers, some advice about making a Will?”. Jean was housebound and lived in South Cheshire. “No problem” the solicitor said. We regularly call on clients by prior appointment, particularly if they have difficulty getting about.
The solicitor saw Jean in her home a few days later. Often, a new client will want to have a major review of their Will. Frequently their existing will was made many years ago. Their spouse or partner might have passed on, children grown up and maybe grandchildren are now on the scene. That was the case with Jean. She had grown up children and grandchildren and wanted her two children to be ‘in charge’ of dealing with everything in the event of her death.
Jean and the solicitor discussed inheritance tax. Jean lived in a very nice house and had some antiques, furniture and paintings. She knew she might have to pay inheritance tax on the house, but did not think there would be anything to pay on the other items. “I have already dealt with them” she said. “I have given them away. I have labelled each of them and have written already to those concerned, advising them that I have gifted the item to them”.
Often clients want to make gifts in their lifetime to reduce their eventual liability to inheritance tax. Unfortunately, there was a problem with what Jean had done. Even though Jean had signified she wanted individuals to have specific items, she had not taken the steps needed to make a valid gift for inheritance tax purposes. Because she still retained possession of the gifted items HM Revenue & Customs would, after her death, have treated those items as if they still formed part of her estate for inheritance tax purposes and this could have significantly increased any inheritance tax that Jean’s estate had to pay.
If you would like advice about making a Will or about dealing with passing on possessions, either during your lifetime or on death, to friends and relatives, we are here to help. Please contact Stephen McCann on 0161 234 8805 or send an email.
