Are fears of post-COVID tax hikes driving sudden rise in gifting to family?

Rod Smith, Partner and Head of our Private Client team in London, comments:

“We have seen a three-fold increase and a degree of urgency in gifting to family members in the past three months as wealthy parents look to help children affected by COVID-19.

“Whilst those families are very aware of their inheritance tax liabilities and that government’s COVID support measures will need to be funded by tax increases, gifting is not being driven by any desire to minimise future IHT liabilities.

“Gifting is often part of long-term financial planning even if not formalised into action – it is often something older family members mean to do but often do not get around to doing. COVID has accelerated the plans of many older family members as the realities of the pandemic hit and by a genuine desire to help family members that have been affected.

“Clients have told us that with the country in lockdown for many months and further restrictions likely, the importance of family ties has become more important. The value of the family bond is concentrating planning and actions.

“The legal and tax implications are having to be addressed as a consequence of this increase in gifting and not as the driver behind activity.”

Gifting is, however, being made responsibly to children and with tax implications carefully considered, as Rod explains.

“Cash is the easiest asset to give away and does not come with any capital gains tax implications but is the hardest to control. We are seeing cash being given primarily to older children, often into their 40s or 50s with children of their own, and often to help with school fees.

“Gifting to younger children will often come with restrictions, perhaps to invest in property where measures can be easily deployed to ensure that the gift stays with its intended beneficiary.

“Interestingly, we are seeing a significant increase in business owners creating growth shares and passing them on to children – a measure that does not affect the business today and provides for children at some point in the future as the business grows.”

Rod adds: “We expect this trend to continue, and perhaps increase, as this pandemic continues, irrespective of what tax measures the government may introduce.”