It is important for tax purposes to establish whether a gift was a “Lifetime Gift” and will be excluded from inheritance tax or gift after person passed away and liable to inheritance tax.
Definition
Lifetime Gift is where the donor INTENDS to make a gift of their property in their lifetime and TRANSFERS the ownership to them in their lifetime according to laws of acquisition.
In a scenario when donor had intention but failed to transfer ownership in their lifetime, it is considered Imperfect Gift.
Example
In Re Owen (deceased); Owen v IRC [1949] 1 All ER 901, the taxpayer gave cheques to three different individuals as gifts. These recipients presented the cheques to the bank shortly after the taxpayer’s death.
It was determined that the gifts had not been completed before the taxpayer passed away, as the ownership of the money did not transfer to the recipients until the cheques were cleared and the funds were received. As a result, the money remained part of the taxpayer’s estate at the time of death, making it subject to inheritance tax.
The right of repayment of a loan is treated as property in the lender’s estate and maybe chargeable for inheritance tax when the lender dies. If the lender releases the borrower from the obligation of repaying the loan, it is like gifting them the money, however, this needs to do this via a DEED.
When it comes to gifting equity (for example ownership of shares) it can be considered that ownership was transferred if they have done everything in their power to realise themselves from the ownership, even if not processed an acquisition. The acquisition can be completed after death if the receiver is decease’s personal representative.
Example
Christina is the executor (i.e., personal representative) of Cyril’s estate. During his lifetime, Cyril intended to gift a property to Christina but did not successfully transfer ownership to her. Upon his death, if Cyril still owned the property and maintained his intention to gift it to Christina, the ownership will transfer to her in her capacity as Cyril’s executor. At that point, the gift is completed and is treated as having taken place.
Another option is for the deceased individual to create a trust in their lifetime. The donor can make a gift in their lifetime to another person by creating a TRUST in favour of that person.
