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

family group

Here are some of the most common questions from our clients about how best to donate their money and assets:

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 once.

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.

More people are using these allowances, often to help people out of tight situations through reduced incomes. Keeping a record of such gifts is vital for tax purposes.

It can also benefit your family to make a larger gift now if your asset may increase in value, putting any future gain in the hands of the recipient.

Deathbed Gifts

We have also seen use of so called ‘deathbed’ giving, when people are near to death and know they will not need funds.

If you die and your estate is worth more than the basic Inheritance Tax threshold, your estate may qualify for the residence nil rate band (RNRB) before any Inheritance Tax is due. The person will need to leave some property to their descendants.

The maximum available RNRB in the tax year 2024 to 2025 is £175,000. The RNRB will gradually reduce 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 threshold. For those who are in a marriage or civil partnership, using the RNRB on first death may be prudent planning.

‘Deathbed giving’ is sometimes advisable in seeking to keep the value of your estate below the £2 million threshold. You need to take into account the effect of the gift on your ordinary Nil Rate Band. We recommend you seek advice on this.

Surplus Income Gifting

Unlike other forms of lifetime gifting, this has no limit. You must be able to prove that the income, expenditure and amount you are regularly giving away is a conscious decision. It must be surplus income, not eat into capital.

Gifting to good causes

People may wish to give charity, the arts, museums, universities, and community amateur sports clubs. Such gifts are exempt from inheritance tax and do not adversely affect your tax position on death as they do not eat into your estate’s ‘nil rate band’ or annual exemption. The ‘nil-rate band’, which is currently £325,000, means that it is taxed at 0% (‘nil’) unless there are lifetime gifts or trusts.

An extra benefit of gifts to charity is that you can claim Gift Aid. Charitable causes can claim an extra 25p for every £1 you give. It will not cost you any extra.

Ask your employer or pension provider if they run a Payroll Giving scheme, so you can donate straight from your wages or pension before tax is deducted.

Assets fat with gain

Valuable items which will make a large profit when sold are an excellent choice for gifting to charitable causes. They are treated as neither a gain nor a loss. For example, historical jewellery collections could be donated.

More controlled charitable gifting

Some people choose to donate on a more personal, controlled, level by creating their own trusts and foundations. This could be a charitable trust, charitable company or Charitable Incorporated Organisation. Setting up lifetime foundations and trusts enables you to set the focus of the charity and work alongside other trustees who will then be able to continue the work after your death.

 Trusts

Although immediate cash gifts can be helpful, for some people, retaining a degree of control is equally important. A trust is the perfect vehicle. It is a mechanism which splits the responsibility for the management of administration of assets from the right to use or benefit from the assets. Trustees control and beneficiaries benefit.

There are many types of trust, but there is almost certainly one which will suit your wishes.

Mandy Casavant is a Partner with RWK Goodman

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