Gifts

There can be several reasons for making a gift or donation, whether to an individual such as a family member or to a charitable organization. You may opt to do so for your own satisfaction, to ensure that your estate is not subject to excessive inheritance tax after your death, or to minimize your personal contribution towards the costs of care in an institution in your later years.

The most tax-efficient approach is usually to gift or donate the exact amount of the gift tax exemption threshold each year. If you have a particularly high income, it is possible that the value of your holdings, and hence your later estate, will continue to grow despite such gifts. In this case, you could consider donating an amount equal to the amount falling in the lowest gift tax bracket and paying some gift tax. This approach can reduce the overall liability by over 10% or 30% of the gifted amount.

There are various options with regard to gifts and donations. You can, for example, opt to transfer a sum of money into the recipient’s bank account, or you can hand over an object of value. You can also use what are termed ‘paper gifts’, whereby you create a financial obligation towards the recipient which is payable over time. In this case, the gift must be formalized by means of a notarial deed, and interest must be calculated (and actually paid) at the rate of 6% per annum. This form of gift is appropriate when you prefer not to relinquish the full amount all at once, or if the money is tied up in property.

In principle, the law places no specific requirements on any other form of gift or donation. Some people wish to ensure that only the intended recipient of a gift will benefit, and not any future ex-partners. Sometimes, it is appropriate to stipulate that the beneficiary is unable to dispose of the gift until he or she has attained a certain age.

When gifting business capital, there is a gift tax exemption of 83%, subject to certain conditions. Because this exemption threshold is so high, we often advise clients to convert personal assets into business capital prior to making any gift in order to make the best possible use of the exemption.

Donations made to an approved ‘Public Benefit Organization’ (ANBI) are exempt from gift tax and may also be deductible against income tax if certain conditions are met.

Please contact us if you need further information about gifts and donations and minimizing tax liability. We shall be pleased to offer advice.