Deed of Gift

What it is

A document that records a gift: what was given, by whom, to whom, and on what date. It sounds obvious. It becomes very important when HMRC, a lender, a local authority or a family member asks about it years later and nobody can prove anything.

How it works

• Most outright gifts to individuals are potentially exempt transfers. Survive seven years and they fall out of your estate entirely.
• Some gifts are exempt immediately. £3,000 a year, which can be carried forward one year only. £250 to any number of separate people. Wedding and civil partnership gifts of £5,000 from a parent, £2,500 from a grandparent, £1,000 from anyone else.
• Regular gifts out of surplus income can be wholly exempt with no seven year wait, provided they form a pattern, come from income rather than capital, and leave you able to maintain your usual standard of living. This one is powerful and badly underused, and it lives or dies on the records you keep.
• Taper relief is widely misunderstood. It reduces the tax on a gift, not the value of the gift itself, and only where the gift exceeds the nil rate band.

The trap to avoid

Transferring your house into your children’s names and carrying on living there rent free does not work. No seven year clock starts. The house stays in your estate at its value when you die, which may be far higher than when you gave it away. On top of that, your children now own a property they do not live in, so their eventual sale can carry a Capital Gains Tax charge that would never have arisen had you kept it.

Care fees are a separate issue again. A local authority can treat a gift as a deliberate deprivation of assets whenever it was made, and the legislation allows it to recover from the person who received the asset.

Where specialist advice matters

• Gifts of property, business assets or shares can trigger Capital Gains Tax on the transfer, even though no money changes hands.
• Money given to an adult child is exposed to their divorce, their bankruptcy and their creditors. Sometimes a trust is the better route.
• Chargeable transfers cumulate for many years, so a gift made today can affect the tax on gifts made much later.
• Keeping the evidence is half the job. We set the deed up so your executors can actually prove what happened.