Is it a gift or not?
Most people would assume that they can freely give away their assets and belongings during their lifetime without causing too many problems. However, as is often the case, it is only when someone dies that the pitfalls of giving can become all too clear. A recent decision of the First Tier Tribunal Tax Chamber considered whether some paintings had been validly given away.
If a person purports to give away an asset during their lifetime, the value of that asset may still be counted back into the value of their estate for Inheritance Tax purposes if it is considered that there was not a valid gift of the item. If someone gives something away but retains the benefit of it in some way, HM Revenue and Customs may consider that there was no valid gift. The classic example of such a gift is a valuable painting. If someone says that they are giving away a painting but leaves it on their own wall, they may still have to pay tax on the value of the paining when they die.
The facts of the recent case were complex and did involve paintings. HM Revenue and Customs determined that the paintings in question had not been validly gifted and thus the value of the paintings would be counted into the estate of the deceased for the purpose of calculating Inheritance Tax. The reason for the decision is that although the paintings were removed from the wall of the donor, they were almost immediately returned to exactly the same position on the wall.
The appellants produced evidence to the Tribunal to show that advice had been taken at the time of the gift, there was a letter to show that the paintings were intended to be a gift and the paintings were returned to the same wall because the recipients did not have secure or permanent alternative accommodation in which to safely hang and protect the valuable paintings. On these facts, the appeal was allowed and the value of the paintings was not included in the estate.
This case demonstrates the vital importance of obtaining legal advice at the time a gift of valuable assets is to be made and of ensuring that evidence of the intention of the parties at the time of the gift is recorded and retained.
To discuss this or any other wills or inheritance tax issue, contact us.
Internet link: Scott v HMRC