I’d like to give money to my family or charity before I die. What’s the best way to do this?

family group

Many people are choosing to write a will or review their estate plan in the current circumstances. We take a look at the options for bestowing gifts, either to family or others, or to charity.

Modest gifts

You can give away £3,000 worth of gifts each tax year (6 April to 5 April). This is known as your ‘annual exemption’. You can carry any unused annual exemption forward to the next year – but only for one year.

You can give as many gifts of up to £250 per person as you want during the tax year, as long as you have not used another exemption on the same person.

There is also benefit in making larger gifts to family or others now, when a number of assets have fallen in value due to COVID-19. Any future gain is then in the hands of the recipient.

Death bed gifts

Some people make ‘death bed’ gifts, when they know they will not have need of funds.

If you die and your estate is worth more than the basic inheritance tax threshold of £325,000 known as the nil-rate band (NRB), your estate may qualify for the residence nil-rate band (RNRB) if you leave certain property to your descendants.

The maximum available RNRB in the tax year 2020 to 2021 is £175,000. The RNRB will gradually reduce, or taper away, for an estate worth more than £2 million, even if a home is left to your direct descendants. The RNRB reduces by £1 for every £2 that the estate is worth more than the £2 million taper threshold.

Death bed giving is a way to keep the value of your estate below the £2 million taper threshold. Of course, the effect of the gift itself on your ordinary NRB needs to be taken into account, and it’s best to seek advice.

Surplus income gifting

There is no limit to surplus income gifting, but you will need to provide evidence of your income and expenditure, and show you have made a conscious decision to give money away regularly. You’ll also need to prove that you are giving away income, rather than capital or savings.

Some of the older generation are in a position to use this, as their expenditure has dipped due to COVID-19 lifestyle restrictions, while income from pensions, dividends and rentals has broadly stayed the same. They can use surplus income giving, in addition to modest capital gifting, to help out family members who may be struggling.

Gifting to good causes

Many charities have suffered greatly through the COVID-19 crisis, as have the arts, museums, universities, and amateur sports clubs.

Gifts to charities are exempt from inheritance tax and do not adversely affect your tax position on death, as they do not eat into your estate’s NRB. This amount is taxed at 0% or nil, unless there are lifetime gifts or a trust which erode this figure.

An allied benefit of gifts to charity is that you can claim Gift Aid, not just for payments in the current tax year but also in the previous tax year. Charitable causes benefit as they can claim an extra 25p for every £1 you give. It will not cost you any extra. Your donations will qualify as long as they’re not more than four times what you have paid in tax in that tax year.

If your employer, company or personal pension provider runs a payroll giving scheme, you can donate straight from your pay or pension, before tax is deducted.

Valuable items

If you have valuable items in your estate, for example works of art or jewellery, you can give these to charitable causes.

More controlled charitable gifting

A further option to donate on a more personal, controlled, level is to set up your own charitable trust, charitable company or Charitable Incorporated Organisation. These enable you to focus your giving, and work alongside other trustees who can continue after your death.

Trusts

If you need to retain a degree of control over your gifts, a trust would work well. Those who manage or administer the assets, known as trustees, are separate from those who use or benefit from them. Trustees control; and beneficiaries benefit.

Using a trust will let you control how your assets should be distributed, to who, and when. This means that you can release funds to your beneficiaries at intervals, or after a period of time, or for minors, once they have come of age.

Mandy Casavant TEP is a Senior Associate at Royds Withy King in Swindon.

Disclaimer

An article of this kind can never provide a complete guide to the law in these areas, which may be subject to change from time to time. The opinions and suggestions made within this article should not be interpreted as specific advice in relation to any particular individual or individuals. Neither STEP, the article author or their firm accept responsibility for any loss occasioned by someone acting or refraining to act on the basis of the opinions and suggestions contained in this article. More