Gifts, loans and establishing trusts

Some individuals may reach a stage of their lives where they want to pass assets on to their family and loved ones.

Tax may not be a primary motivator but is always a consideration. Likewise, there are different ways to protect assets from financial claims and to make sure ongoing benefit is secured. Gifting and lending are always better done as part of an overall succession strategy, streamlined with other planning measures (including any business strategies and wills).

How we can help

Your strategy

Gifting may need to strike a balance between the pleasure of improving the life of the recipient and looking after your own long-term lifestyle and maintenance. The type of asset gifted or loaned, and the timing, may be critical to achieve the most effective outcome. We can work with your other advisers to help you to develop that strategy.

Flexibility

Using trusts or loans can provide flexibility of benefit for the future and help you keep control of the value moving forwards. Trusts still often have an important part to play as part of a well-designed succession strategy.

Protection

There are many different ways to provide protection against financial claims and take account of the personal circumstances of different beneficiaries:

loans (sometimes in conjunction with trusts and often as part of a wider strategy) can improve protection from financial claims, such as cohabitees or on divorce/dissolution
trusts can be established and managed to reduce the risk of losing value on financial claims against the beneficiaries or to give structured benefit to an individual (like the right to income or to use a particular asset)
Disabled trusts and vulnerable person’s trusts can provide tax advantages and certainty of benefit for those with a disability

Taking advantage of reliefs and exemption

You can structure your gifting to maximise the benefit of any reliefs and exemptions. This may be organising gifting your surplus income on a regular basis, so that the value is immediately free of inheritance tax. It may be taking advantage of business property relief or agricultural property relief to pass assets on while they’re free of inheritance tax (particularly to transfer larger value into a trust structure). It may be organising the ownership of a holiday home so that everyone can take a benefit in a tax efficient way.

While considering tax opportunities, we can assess the interaction between different personal taxes and reduce risk. There’s no point in securing a potential inheritance tax saving while triggering a significant capital gain tax payment.

Our experience

Here are just a few examples of our work helping clients make effective gifts and loans:

we worked with a client to direct his surplus income (carefully calculated and recorded) and the maximum amount of capital cash (without incurring an inheritance tax charge) into a number of trust structures to benefit his children over a period of time. The trust funds were then lent to his respective children, with formal loan agreements, to enable them to buy their first properties. If necessary, the funds could have been recalled to the trusts, to be used in a different way for the wider benefit of a wider class of beneficiaries.
we’ve helped clients establish a number of trusts for the benefit of their children – combining discretionary trusts with disabled trusts and structuring the gifts to maximise the future tax efficiency
we helped parent and daughter clients to purchase land which included a larger and a smaller property, with the daughter’s contribution including an element of previously gifted cash and with the intention that they would ‘swap’ properties in the future as circumstances changed. We particularly advised on the tax anti-avoidance rules to ensure the planning didn’t create an adverse tax position.
we helped a farming family hand over assets to their children, while keeping enough for their own needs and to run the farm.