A warning from Scrooge: the evidence required by HMRC to apply the relief is extensive and includes details of the donor’s annual income and expenditure on costs such as insurance, household bills and council tax. It is consequently important for accurate and detailed records to be kept of one’s income and expenditure to allow the donor’s executors to prove that the relief applies.
Gifts to charities
Some good news. A Christmas gift to a charity registered in the UK or in the EU of any amount, at any time, has no inheritance tax charge attached. This exemption applies both to gifts made during one’s lifetime or under the terms of a Will.
Indeed, if the terms of the will state that at least 10 per cent of one’s net estate is to pass to charity the rate of tax that applies to the balance of the estate is reduced from 40 per cent to 36 per cent. There is no compulsion to limit the number of charities to which the payments are made.
This means the testator can specify that one charity receive 10 per cent of their net estate or that ten charities each receive 1 per cent.
HMRC states that the exemption must be straightforward and unconditional. Where the gift is subject to stipulations, such as the money having to be used for a specific purpose, or is limited to a certain amount of time, HMRC may argue that the gift does not qualify for the exemption.
Declarations of trust
When making a gift of an asset rather than cash, the donor may have to consider the capital gains tax implications of making the gift. If the value of the donor’s share of the asset has increased by more than £12,300 then there is likely to be a charge to capital gains tax attached to the gift.
The donor may instead prefer to make use of their annual capital gains tax allowance by giving away some of their interest in the asset each year. They can do this by completing a declaration stating that they hold a given percentage of the asset for themselves, and the remainder for the beneficiary of the gift.
The following tax year, the donor will be able to use their allowance once more to give away more of their share in the asset and can continue to do so until the recipient owns the entire beneficial interest in the asset.
