Island Life Magazine Ltd December 2014/January 2015 | Page 145
Roach Pittis advice
By Ian Bradshaw
Roach Pittis Solicitors,
60 - 66 Lugley Street, Newport, PO30 5EU
01983 524431
[email protected]
Ebenezer's generosity
E
benezer was a wealthy man but
famously frugal with it. During
the course of his life he made no
substantial gifts and it was only after
a rather phantasmal experience one
evening that he changed his ways and
became rather most generous. When
Ebenezer died his estate was relatively
modest due to his generosity and what
with the gifts he made in his lifetime it
transpired that there was tax to pay.
At the date of his death on December
24, 2014 Ebenezer had like everyone else
a current single exemption to Inheritance
Tax of £325,000 subject to gifts he had
made in the immediate seven years prior
to his death. Details of Ebenezer’s gifts
were: December 25, 2008 – Mr T. Tim
£25,000. December 25, 2009 – Mr B.
Cratchit £50,000. December 25,2010 – Mr
J. Marley £75,000. Total gifts: £150,000.
At the date of his death Ebenezer
owned £200,000 worth of assets which
in addition to the gifts made in the seven
years prior to his death meant that he was
deemed to own £350,000 of chargeable
assets for tax purposes. After deducting
his exemption (£325,000) there was
£25,000 worth of assets on which tax was
payable at 40 per cent being £10,000.
"The inheritance tax
system is designed
therefore to prevent
people avoiding tax"
If Ebenezer had gifted the money to T.
Tim in 2001 then there would have been
no tax to pay on his Estate as this gift
would have been outside of the seven
years immediately before death. Only
gifts to Mr Cratchit and Mr Marley would
be included within his tax calculation
(£125,000) thereby bringing his estate
equal to his exemption (£325,000)
therefore no tax.
The inheritance tax system is designed
therefore to prevent people avoiding tax
by making gifts to individuals just prior
to death.
In order to avoid the potential of gifts
being treated as part of your estate it is
best to make the gift as soon as you are
able thereby commencing the seven years
as soon as possible and also ensure that
you do not continue to benefit by the
gift made. That said, gifts should only be
made of assets or amounts that you are
certain you can absolutely do without
and will not make a difference to your life.
Once a gift is made the gift, control and
ownership is gone.
The recipient of the gift can also make a
difference for tax purposes. Gifts between
husband and wife or civil partners are
exempt anyway provided they are UK
domiciled. Special rules also apply for gifts
into trusts or companies. Capital Gains
Tax may be relevant for lifetime gifts of
assets that are not cash.
www.visitilife.com
145