Gifting can reduce your Inheritance Tax bill – but your best interest must prevail
Attorneys and deputies currently have limited authority when it comes to making gifts from a protected party’s estate. By law, they can only make decisions for a person who is no longer able to do so and unlikely to be able to do so in the future.
In general, gifts can only be made to a charity or to a family member, friend or acquaintance on a ‘customary occasion’ such as a birthday, and the gift must be of a reasonable value compared with the size of the estate. Outside these requirements, a gift can only be made with the approval of the Court of Protection.
Increasingly, attorneys and deputies are considering the gifting process as an integral part of inheritance tax planning. Inheritance tax (IHT) mitigation can be a significant factor when making gifts, but this often has to be approved by the Court of Protection.
Earlier this year a Court of Protection judge ruled that IHT mitigation should not be considered an independent factor when deciding a person’s best interest in favour of making a gift. In this case, an attorney applied to the Court of Protection for simultaneous approval of a statutory will and a substantial lifetime gift worth about £7m. The estate was valued at approximately £18.5m, so the arrangement had the potential to reduce IHT liability by up to £2.6m.
The judge had to be persuaded that the gift was in the donor’s best interest according the terms of the Mental Capacity Act 2005. This sets out the criteria for deciding on the principle of best interest, including a consideration of the donor’s past and present wishes, feelings, and beliefs.
In this case, the advance gifting was deemed to be in line with the donor’s wishes as stated in an earlier will in favour of her son and several charities. Aged 74, the donor suffered from dementia and lived in residential care; her life expectancy was estimated at three to five years. Because of the substantial size of her estate, the gift would not jeopardise her ability to meet future care costs – the balancing factors in favour of the proposed gifts outweighed those against it.
If you would like to know more about the implications of inheritance tax, or need advice on a Court of Protection or Deputyship matter, contact the George Ide team on 01243 786668 or email us at firstname.lastname@example.org.
Stephen Shine. Chartered Legal Executive. Private Client department.
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