Coronavirus pandemic means people should consider bringing forward lifetime gifting plans, says Tilney

21 April 2020

The Government has announced that the current lockdown measures in place to help stop the spread of Covid-19 will remain in place until at least early May. During this extremely uncertain time, our prime thoughts are for the safety and well-being of our families and loved ones. While staying healthy is obviously of the utmost importance, our financial wellbeing is also of concern, and now could be the time to aid those we are able to. Ian Dyall, head of estate planning at Tilney, looks at how you could do this.

“While many may have had their estate planning strategy in place for some time, we are in unprecedented times which are changing our priorities and our financial situations at an alarming rate. You may have not felt the need to gift before, as your children were doing well financially with secure jobs or businesses, but the current situation has turned that financial security on its head for many, and parents are starting to re-evaluate whether they can afford to help. Now is definitely a time when people should be considering whether they should start making gifts, and if so how. 

“They can do that by making an outright gift or a gift into a trust.  While an outright gift has the benefit of being simple, a discretionary trust can be beneficial in protecting the assets (e.g. from divorce or bankruptcy), ensuring that those assets don’t damage any benefits that the intended beneficiary may be on and ensuring that the gift does not create an IHT liability for the beneficiary.  Trusts are also useful if the donor wishes to provide for a number of different beneficiaries where the financial needs of those beneficiaries are not yet clear, which is valuable in such an uncertain and changing landscape.  In effect, this creates an “emergency fund” that different children or grandchildren can benefit from if and when needed.

“There are two tax issues that often deter people from making gifts either outright or to trust:

  • the capital gains tax that would be incurred when passing on assets
  • if gifting using a trust, the amount that can be put into trust without triggering a 20% IHT “initial charge”.

“If assets are held until death, under current legislation, any capital gains are exempt from capital gains tax but those assets WILL be liable for inheritance tax.  Gifting the assets away 7 years before death will eliminate the IHT liability, but would be a disposal for CGT.  On the basis that 20% capital gains tax on the gain will be less than 40% IHT on the whole value, it makes sense to gift, but the CGT bill is a deterrent for many.

“However, the current slump in the economy brought around by the Global Pandemic has reduced in the value of investments. This means that the CGT bill will currently be much lower than it was a few months ago so now is an opportunity to make gifts more tax efficiently.  An outright gift would be a Potentially Exempt Transfer (PET) the value of which is the value on the date that the gift was made, that doesn’t change if the assets subsequently return to their previous value.  If the donor dies within 7 years, that PET will reduce the nil rate band available to the estate.  It is therefore important that the donor is confident about living 7 years as they would in effect be paying capital gains tax, but getting no IHT benefit.

“The reduction in investment values also helps with funding trusts.  If you gift more than the nil rate band to a discretionary trust over any 7 year period, the excess is liable to IHT at 20%.  The reduction in the value of investments means that the donor can get more into the trust today than they could 6 months ago.

“Now is the perfect time to be giving a financial gift to help your family. As ever, please ensure you seek financial advice before making any large decisions.”

About Tilney

Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years.  Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.

We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.

Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.