Why the Date of a Gift Matters More Than You Think

The date of a gift can impact tax reporting, estate administration and evidence for an enquiry.

I was recently posed a question that on its face appeared simple. ‘What date was the gift from a recently deceased parent made?’

This may seem obvious, for example when my parents transferred some funds via a bank transfer, surely the date of gift was that day?

In many cases the date of actual transfer is probably a perfectly acceptable date, so why make things complicated?

What if:

• I was owed that money from a promise made by my grandfather last year – is the date of gift still when I receive the money?
• Or it wasn’t a bank transfer but a property that I received – when does that legally belong to me?
• Or the donor (person making the gift) died while this was in progress?

Why the timing of a gift is so important

The date of a gift may influence a range of issues, including tax reporting, estate administration, and evidence for an enquiry. It can also be central to determining whether a gift was completed during the donor’s lifetime, whether it falls within a relevant review period, and whether all necessary steps were taken to transfer ownership properly.

Inheritance tax may apply to gifts made within the 7 years prior to a death, payable by the recipient, so marginal cases could be very significant.

Uncertainty

Bearing in mind the seven-year clock above, you can imagine how memories may have faded by the time it becomes relevant. If records are incomplete this can make things uncertain for family members, executors, advisers and HMRC.

• Was the gift ever legally made?
• Was it an immediate transfer or a future intention?
• What is the tax treatment?
• Should the executors include it in the estate paperwork?

Even where everyone acted in good faith, a lack of clear documentation can make a relatively simple gift unexpectedly difficult to deal with.

So back to my original query:

• The gift was made out of an inheritance
• The donor never received the money themselves, they merely asked that it be paid to the recipient
• The donor has died within 7 years

Now, when is the date of gift?

Well, if the decision, request and payment were all made on the same day, there is no issue. But what if that is not the case?

There is no legislation that confirms the date a gift is made – that is something that has been decided as a matter of general law, i.e. by the courts through legal cases. It is determined by the “exact time at which legally enforceable rights pass” per HMRC’s guidance.

A practical recommendation

For anyone making a substantial gift then, particularly as part of wider estate or succession planning, it is worth taking steps to avoid ambiguity from the outset. One of the most effective ways to do that is through a Deed of Gift.

Deeds of Gift are often important because they record the date of the gift, they specify exactly the subject of the gift and they provide very good evidence of the donor’s intention to make a gift – all things that can be very useful later in particular if there is later a dispute about the estate.

A Deed of Gift provides formal evidence of the donor’s intention and helps record the key details of the transfer, including the date. Deeds are drafted by solicitors and signed by the donor (and usually recipient) with witnesses.  Our associates at Langdowns Limited, also part of the Shaw Gibbs Group can assist with the drafting of a Deed of Gift, if required.

They are legally binding and therefore meet HMRC’s interpretation as the date when legally enforceable rights pass.

If my querent had a Deed of Gift, we could all be certain of the date.

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