LinkedIn reminded me at the start of the month that I have just had my seventh "work anniversary" at Brodies. That in turn made me reflect on the passage of time, and in particular the need for a donor to survive a lifetime gift by seven years for it to be effective for Inheritance Tax purposes.

In our Handy Guide to Inheritance Tax, we make the simple point that of the four mainstream approaches to tax planning, often lifetime giving is the simplest and most effective mechanism to mitigate an IHT exposure.

When undertaking lifetime giving to achieve a reduction in the exposure to Inheritance Tax the major points that ought to be considered are

  • the attributes of the intended recipient - is he or she in a position to receive and look after the property that is being given away, or is some form of asset protection, such as a family trust, more appropriate?
  • what are the capital gains tax consequences of the gift, and if there would be a CGT liability might any relief apply? - hold over relief can be particularly helpful here.
  • can the donor afford to give the asset away? - once it is gone, it is gone. Cash flow projections for the donor are a useful way of illustrating the extent of wealth (both capital and income streams) that should be retained for their financial security during the remainder of their lifetime.

Typically gifts from one person to another are Potentially Exempt Transfers (PETs) and become completely exempt transfers if the donor survives for seven years. Gifts to trusts are different - they are Lifetime Chargeable Transfers (LCTs) but taxed at 0% if the value of the property placed in trust is within the donor's available nil rate band (looked at over the last seven years).

In my twenty five years of experience, donors of gifts made for IHT planning purposes usually do survive the gift for seven years, and often then go on to repeat the cycle. But not all do. Some start the planning too late (although better late than never) and some die unexpectedly. It's usually good sense to at least consider a seven year term life assurance policy to cover the IHT consequences of failing to survive the seven year period.

Back to seven. After seven years at Brodies I'm delighted to see how well the private client team has grown. We have just recruited another lawyer to the private client team taking us to a full complement of seven specialist private client lawyers - the largest such team in Aberdeen, the North East and North. The magnificent seven perhaps? Furthermore, the team has been ranked Band 1 by the legal directory, Chambers & Partners over the last several years - the only firm in Aberdeen with a Band 1 ranking in Chambers & Partner High Net Worth directory. The biggest and the best.

Download our Inheritance Tax handy guide.


Mark Stewart

Head of Personal & Family and Partner