Many clients use one or more of the 7 exempt gifts to fund school fees for grandchildren.
However, where exempt gifts have been fully utilised, care needs to be taken with gifting to fund school fees.
Some grandparents have failed to recognise that, in order for a gift to be categorised as a potentially exempt transfer (PET) the value of the recipient’s estate needs to increase as well as the donor’s estate falling in value; or at least comprise part of the donee’s estate.
A situation can arise where gifts do not comprise part of the recipient’s estate or cause a rise in value if the contract with the school is entered into by the grandparents.
Consequently, as a result of falling into this trap, some have unwittingly created a series of chargeable lifetime transfers (CLTs) resulting in a reduction in their nil rate band or failing to disclose and pay an immediate lifetime IHT charge of 20%.
Gifting is one of those areas where, if clients are keen to plan their estates in a tax efficient manner and ensure they do not jeopardise their own later life positions, professional advice from suitably qualified advisers, achieves much better outcomes.
If you or anyone you know would like more information about gifting, please contact us.
Comments