COVID-19 (Coronavirus) – Gemini Update - January 2021

In line with current Government guidelines, we have taken the decision to reduce the numbers of staff at our Head Office in Sutton Coldfield with the majority of staff returning to working remotely.

However, to reassure you, it is business as usual and we are still available to contact by phone and email as all our systems can be accessed and operated remotely.

Indeed, it is times like these where you may need to seek additional advice from financial services professionals. Both our Wealth Managers and Estate Planning Consultants remain available to assist you and are able to offer guidance on the phone, by email or by video technology.

Please contact us FREE on 0800 255 0123 or email info@gemini-wm.com where we will do our best to assist you.

We would also like to extend our offering to your family, friends or colleagues so please do pass on our details. We are here to help!

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A Short Guide to Gifts and IHT

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With careful planning, it’s possible to reduce, or even avoid Inheritance Tax (IHT). The key is to plan ahead and make the most of gifting allowances during your lifetime.

But making a gift does not mean it is immediately outside your estate. There are certain rules and restrictions to be aware of.

Gifts to Family and Friends

Most people want to ensure that their family can benefit from the legacy they have worked hard to build. It makes sense to pass on wealth during your lifetime. Not only will this reduce your IHT bill, but it also means you can see your family benefit from the money.

Gifts to individuals are treated in the following ways:

  • ·       Small gifts of up to £250 per person, or Christmas, birthday and wedding presents (up to certain limits) are generally ignored for IHT purposes.
  • ·       Each individual can gift up to £3,000 per tax year in total. This is immediately exempt. The allowance can be carried forward by up to one year if unused. This means that a couple could gift up to £12,000 in a single tax year if they had not made any previous gifts.
  • ·       Regular gifts from income are also immediately exempt, providing they are affordable and within your normal spending pattern.
  • ·       Larger gifts remain within your estate for seven years and are referred to as Potentially Exempt Transfers (PETs).
  • ·       If the gift is over the current nil rate band (£325,000), taper relief applies on any IHT that would be payable. The tax on the excess reduces by 20% per year from year 3 onwards.
  • ·       Gifts must be made without reservation to be effective for IHT purposes. For example, if you gift your home, but continue to live in it without paying market rent, it will be still be treated as part of your estate.
  • ·       Gifts of assets, such as shares, are treated as a disposal for Capital Gains Tax purposes and may lead to a tax liability if the assets have increased in value.
  • ·       If you need care in the future, gifts you make may be scrutinised to ensure that you haven’t deliberately deprived yourself of assets to avoid paying for care.
  • ·       You can only undertake IHT planning when you are in control of your own affairs. If a Power of Attorney is granted for someone else to manage your finances for you, they cannot make gifts on your behalf for IHT purposes without approval from the Court.

It’s important to only make gifts that are affordable without restricting your own lifestyle. A cashflow plan can help with this.


Gifts into Trust

A Trust is a useful way of ring-fencing money for beneficiaries without giving up complete control of the money. This can work in the following ways:

  • ·       A bare trust is treated in the same way as an outright gift. Usually, the beneficiary is a minor child who will gain absolute control of the assets when they reach adulthood. The gift into trust is a Potentially Exempt Transfer, and the assets are taxed as though they belong to the beneficiary.
  • ·       A discretionary trust allows the trustees to distribute assets to a variety of beneficiaries. Gifts into a discretionary trust are classed as Chargeable Lifetime Transfers (CLTs) and immediately incur IHT of 20% if the gift exceeds the nil rate band. On death within seven years, the gift is added back into the estate. Discretionary trusts also pay additional IHT every 10 years or whenever money is distributed from the trust. Trusts generally pay a higher rate of income and capital gains tax than individuals.

In most cases, it is not possible for the person making the gift (the settlor) or their spouse to access the trust funds, as this would be ineffective for IHT purposes. However, there are exceptions to this:

·       Interest in possession trusts allow one party (for example, a spouse) to benefit from the use of, or income from, an asset for the duration of their lifetime. The asset then reverts to the other beneficiaries on their death.

·       Discounted gift trusts pay a contractual income to the settlor for their lifetime. The remaining capital is held in trust for the beneficiaries. The gift is immediately discounted in terms of value to the estate, before becoming fully exempt after seven years.

·       Gift and loan trusts allow the investment growth from an asset to accumulate outside the estate. The loan element still belongs to the settlor and is included in their estate. They can withdraw the capital as they wish. The settlor can make additional gifts by ‘writing off’ portions of the loan and allocating them to the beneficiaries.

Trusts are a complex area, and advice is always recommended.

Charitable Donations

The following gifts are immediately outside your estate for IHT purposes:

  • ·       Gifts to registered charities
  • ·       Donations to political parties
  • ·       Donations for national benefit

Charitable gifts are also eligible for income tax relief.

Additionally, if you make gifts to these organisations via your will and they form at least 10% of your estate, you will receive an IHT discount of 10% on your other assets (reducing the rate from 40% to 36%).


Reducing IHT

The best estate planning strategy is likely to use a combination of these gifts and is planned well in advance.

Here are our top tips for reducing your IHT liability:

  • ·       Use your annual gifting allowances as this will help to reduce the value of your estate over time.
  • ·       Place any life cover in trust, as this will be immediately outside your estate.
  • ·       Remember that your pension funds are outside your estate and can be paid out to your beneficiaries free of tax if you die before age 75. After age 75, the beneficiaries can draw a taxable income. It is often more efficient to preserve your pension funds for the next generation.
  • ·       Think carefully and seek advice before making large gifts or placing money in trust. This may cause you financial hardship later on, or lead to unintended tax consequences.

IHT planning is most effective when undertaken as part of a comprehensive financial plan.

Please do not hesitate to contact a member of the team to find out more about your estate planning options.

The Financial Conduct Authority does not regulate tax advice

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