What is a Deed of Gift?
In the UK a Deed of Gift is a way to legally add a person (or people) to your property’s deeds. It may also be used for transferring money or shares. At least one of the original owners must remain on the title. As a gift it is made without payment in return and this in turn means that the documentation has to be witnessed. The witnessing party may not have any interest – as a benefit or a loss – in the transference of the gift.
Why use it?
It’s painful enough to manage someone’s estate after they pass, without the extra stress and delay that dealing with probate can cause. Not to mention that inheritance tax laws may then take a large portion of the value of the estate. When you’ve worked for years to build something up you understandably want to pass it on to family and friends. A deed of gift can help you legitimately reduce your exposure to inheritance tax and avoid the lengthy probate process.
However, you should bear in mind that if the purpose of the deed of gift is to increase financial entitlements for care the local authority may take steps to recover the assets or assess you as if you still had the assets. They would attempt to demonstrate what the intention was at the time of giving the gift. Therefore the greater the time there is between the giving of the gift and the need for care the safer the gift is.
Any gift is also subject to the 7 year rule of inheritance tax – this states that you can make an outright gift of your home and if you live for 7 years after this it will be exempt from inheritance tax.
If you continue to live in the property after giving it away and don’t pay market rent rates to the new owner the 7 year rule becomes irrelevant as the gift is now considered to be ‘a gift with reservation of benefit’.
How to use it
Take advice from a legal professional. The cost of this can be insignificant when compared to the savings that can be made and the peace of mind that can be obtained. And while it’s not nice to think about, we highly recommend sorting this out sooner rather than later. It will help to avoid the complication and stress that you don’t need during difficult times.
Prestige Tax and Trust Services can help you create a deed of gift, contact us for more information and tailored advice from our professional staff.