Christmas is a time for giving, and for many, that includes generous financial gifts or even property transfers to family members. While these gestures are often made with the best intentions, they can have significant legal and tax implications if not handled correctly. At McPartland & Sons Solicitors, with offices in Lisburn and Lurgan, we provide clear guidance to help you navigate these matters and ensure your generosity doesn’t lead to future legal complications.
Gifting Money: The Basics
When gifting money, the most important consideration is Inheritance Tax (IHT). In the UK, which includes Northern Ireland, gifts you make during your lifetime are not immediately subject to tax. However, if you die within seven years of making the gift, it may become subject to IHT as part of your estate. This is known as a Potentially Exempt Transfer (PET).
- Annual Exemption: You can gift up to £3,000 each tax year without it being added to the value of your estate for IHT purposes. This is your “annual exemption.” You can carry over any unused allowance from the previous tax year, for one year only. For example, if you didn’t use last year’s allowance, you could gift up to £6,000 this year.
- Small Gifts Exemption: You can also give an unlimited number of gifts up to a value of £250 per person per tax year, as long as the recipient has not received any other part of your annual £3,000 exemption.
- Regular Payments: Regular gifts made from your income, such as a monthly payment to help a child with living expenses, may be exempt from IHT, provided they don’t impact your own standard of living.
Gifting Property: A More Complex Matter
Transferring a property to a family member is a much more complex legal process than gifting money. It can involve multiple types of tax and require careful consideration to avoid future disputes.
- Inheritance Tax: Like monetary gifts, a gifted property is considered a PET. If you survive for at least seven years after the transfer, it will be fully exempt from IHT. A tapered rate of tax applies if you die between three and seven years after the gift.
- Capital Gains Tax (CGT): When you gift a property that’s not your main residence (e.g., a rental property or a second home), you may be liable to pay Capital Gains Tax. This tax is calculated on the difference between the value of the property when you acquired it and its market value at the time of the gift. There is an annual CGT exemption you may be able to utilise.
- Stamp Duty Land Tax (SDLT): The recipient of the gifted property may have to pay SDLT if there is a mortgage on the property being transferred. The tax is calculated on the value of the outstanding mortgage.
- Gift with Reservation: A common pitfall is gifting property but continuing to live there rent-free. This is considered a “gift with reservation of benefit,” the property will still be considered part of your estate for IHT purposes. To avoid this, you would need to pay a market-rate rent to the new owner.
Seeking Professional Legal Advice
Navigating the legal intricacies of gifting can be challenging. A mistake could result in significant tax liabilities for you or the recipient. We strongly advise that you seek expert legal advice before making any large financial gifts or property transfers.
At McPartland & Sons Solicitors, we can help you:
- Understand the full legal and tax implications of your intended gift.
- Ensure that any property transfer is completed correctly, including liaising with the Land Registry.
- Advise on alternative options, such as trusts, to ensure your assets are protected and managed according to your wishes.
This Christmas, plan your generosity with care. Contact McPartland & Sons Solicitors in Lisburn or Lurgan to get the professional legal advice you need to make sure your gift brings joy, not legal headaches.
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