Traps of the Abolition of Gift Duty
07/09/2011 by Admin
It is common knowledge that the government is to abolish gift duty from 1 October 2011. The legislation will be amended to record that no gift duty is payable under the Estate & Gift Duties Act 1968 in relation to a gift made on or after 1 October 2011. However, before you engage in a frenzy of gifting in October, there are a number of factors which you should take into account.
The abolition of gift duty has not resulted in any amendment to a wide range of other legislation that deals with the disposal of your property
It will still be important to record any gift that you do make so there is clear evidence of it having been done in case of future disputes about the status of your assets, and
It is also likely that due to a number of factors that we refer to below you should complete a Solvency Statement. This will become important when you are transferring significant assets so you can minimise the risk of claw-back.
Income Tax Act 2007
Forgiving debt (which will reduce or wipe out a debt) will still give rise to income for the recipient under them Financial Arrangement Rules unless you have natural love and affection for the recipient of the gift.
Insolvency Act 2006
Under the Insolvency Act 2006, any gift you (if you are the bankrupt) may have made within two years of being made bankrupt may be set aside. Furthermore, under s205 of the Act, the Official Assignee may also set aside gifts you have made within two and five years before bankruptcy if you were unable to pay your debts at the time that the gift was made. The burden of proving that you were solvent at the time that the gift was made falls on the recipient of the gift.
The Insolvency Act 2006 also provides that any transaction you make within six months of your being adjudicated bankrupt is presumed, unless the contrary is proven, to be made at the time when you were unable to pay your debts.
Hence, the importance of the Solvency Statement which we refer to in the third bullet point above.
Property Law Act 2007
The Property Law Act 2007 enables the court to set aside specific transfers of property that prejudice creditors. It is therefore important that in terms of this legislation, any transfer or gifting of property does not have the effect of prejudicing any creditor.
Property (Relationships) Act 1976
The Property (Relationships) Act 1976 has provisions that enable the court to examine the transfer of property, particularly to trusts. The legislation also enables the court to make Orders to compensate a spouse, civil union or de facto partner, whose claim or rights have been defeated by the transfer of property to a trust.
Social Security Act 1964
The Social Security Act 1964 has provisions that state that if you or your spouse or partner apply for a means assessment, and either of you have directly or indirectly deprived yourself of any income or property (other than an exempt asset) then a means assessment will include as your property the value of any assets you have disposed of for less than fair market value (ie: by gifting it).
Think carefully before starting to gift
It may seem that the abolition of gift duty will make it easier for you to pass stock, plant and machinery or land to the next generation. Our warning to you, however, is that although gift duty may be abolished from 1 October, you should talk with us before embarking upon any gifting to ensure that you avoid any unintended consequences.
The abolition of gift duty has not resulted in any amendment to a wide range of other legislation that deals with the disposal of your property
It will still be important to record any gift that you do make so there is clear evidence of it having been done in case of future disputes about the status of your assets, and
It is also likely that due to a number of factors that we refer to below you should complete a Solvency Statement. This will become important when you are transferring significant assets so you can minimise the risk of claw-back.
Income Tax Act 2007
Forgiving debt (which will reduce or wipe out a debt) will still give rise to income for the recipient under them Financial Arrangement Rules unless you have natural love and affection for the recipient of the gift.
Insolvency Act 2006
Under the Insolvency Act 2006, any gift you (if you are the bankrupt) may have made within two years of being made bankrupt may be set aside. Furthermore, under s205 of the Act, the Official Assignee may also set aside gifts you have made within two and five years before bankruptcy if you were unable to pay your debts at the time that the gift was made. The burden of proving that you were solvent at the time that the gift was made falls on the recipient of the gift.
The Insolvency Act 2006 also provides that any transaction you make within six months of your being adjudicated bankrupt is presumed, unless the contrary is proven, to be made at the time when you were unable to pay your debts.
Hence, the importance of the Solvency Statement which we refer to in the third bullet point above.
Property Law Act 2007
The Property Law Act 2007 enables the court to set aside specific transfers of property that prejudice creditors. It is therefore important that in terms of this legislation, any transfer or gifting of property does not have the effect of prejudicing any creditor.
Property (Relationships) Act 1976
The Property (Relationships) Act 1976 has provisions that enable the court to examine the transfer of property, particularly to trusts. The legislation also enables the court to make Orders to compensate a spouse, civil union or de facto partner, whose claim or rights have been defeated by the transfer of property to a trust.
Social Security Act 1964
The Social Security Act 1964 has provisions that state that if you or your spouse or partner apply for a means assessment, and either of you have directly or indirectly deprived yourself of any income or property (other than an exempt asset) then a means assessment will include as your property the value of any assets you have disposed of for less than fair market value (ie: by gifting it).
Think carefully before starting to gift
It may seem that the abolition of gift duty will make it easier for you to pass stock, plant and machinery or land to the next generation. Our warning to you, however, is that although gift duty may be abolished from 1 October, you should talk with us before embarking upon any gifting to ensure that you avoid any unintended consequences.
