Gifting capacity 

What is a gift and what are the legal implications? Why might a capacity assessment be required when gifting?

A gift is the transfer of money, property or possessions without expecting anything in return. For a gift to be valid under UK law, the following three conditions must be met:

• The gift is given freely and voluntarily by the donor 
• The delivery of the gift to the recipient
• The acceptance of the gift by the recipient

Gifts are given for a variety of reasons, including to express appreciation or simply in goodwill. They can also be given spontaneously as a gesture of generosity and care. Gifts can be anything of value, which can include money, property or possessions. Most commonly, gifts are given on celebratory occasions such as weddings, birthdays and religious holidays. 

When might a gift not be valid?

A gift can be invalid if given under the influence, where the donor may claim no recollection of the exchange. Gifts can be made in error or under the influence of another person. The conditions of the gift may also be questionable, as the donor may claim it was conditional rather than absolute. 

What can you give inheritance tax (IHT) free?

• You can give away up to £3,000 each tax year, which is not added to your estate’s value (the annual exemption). Any unused allowance is carried over to the following tax year. 
• You can make small gifts of up to £250 per person.
• Larger gifts can also be exempt from Inheritance Tax when the donor lives for seven years after making the gift. 
• You can give up to £5,000 to your child when they marry (when made before the wedding).
• You can give up to £1,000 to a relative or friend when they marry.
• You can give up to £2,500 to a grandchild or great-grandchild when they marry.
• You can gift a family member to help with living costs (restrictions apply)
• You can make unlimited gifts from surplus income to your spouse or civil partner (record keeping is recommended). 
• You can gift to charities (which are always exempt from IHT regardless of value).  

How is the capacity to gift assessed?

You may have been advised by your solicitor to undertake an assessment of your capacity to gift to strengthen the validity of the proposed gift, or if there may be a question around your capacity to make the gift in question. Alternatively, you may simply wish to have a formal record of your understanding of the gift, should this be required in the future, for example, if there is a potential for conflict over the gift. 

• For smaller, general gifts, the test Re Beaney (1978) is used.
• For larger, more substantial gift,s the test Banks vs Goodfellow (1870) is used. 

When assessing capacity to gift, the donor is seen alone without the intended recipient present to ensure they can speak freely and without influence. Their understanding of the gift, their motivation behind it and their understanding of any wider implications on their current estate, daily expenses and consideration for any current or future care needs are all explored as part of this assessment process to ensure a clear, robust and accurate assessment of the donor’s decision-making capacity in relation to the gift. Our mental capacity assessors are trained in the evidence gathering required to ensure a Court standard assessment is achieved. Importantly, the individual being assessed feels supported and comfortable expressing their views, wishes and motivation for the gift. 

Importantly, that in line with the very definition of a gift, the understanding that once given, the act is final and cannot be reversed. 

It is important to note that a diagnosis of cognitive impairment does not imply a lack of capacity regarding the gift in question. Our assessors are highly trained, qualified and experienced in a wide range of communication approaches and methods and will work closely with you to ensure the content is accessible and presented in a manner that best suits you. 

Gifting, Court of Protection, Attorneys, Enduring Power of Attorney and Court-appointed Property and Financial Deputies

An application to the Court of Protection may be required when making a gift on behalf of the person whose financial affairs you legally manage. For gifting applications to the Court of Protection, the legal framework is the Mental Capacity Act 2005. Gifts are often a way of supporting the person to show appreciation to family members, friends or those who support them. However, there are strict rules when gifting on someone’s behalf as the Mental Capacity Act only allows you to gift in certain circumstances (Section 12 of the Mental Capacity Act 2005). Due consideration must be given to whether the donor has the mental capacity to make the gift and whether they can participate in the decision-making process. Importantly, it needs to be evidenced that the proposed gift is in the donor’s best interest. Even when someone is assessed as lacking the necessary capacity to make a gift, their views and wishes as it relates to the gift should be sought. 

There are some payments which fall outside of section 12, which only the Court of Protection can consider:

• Making a loan from the person’s funds
• Making a large gift
• Creating a trust of the person’s property
• Living rent-free in a property owned by the person
• Selling a property for less than its value or transferring it into someone else’s name
• Changing the Will of someone who’s died by using a deed of variation to redirect or redistribute the person’s share in the estate
• Maintaining someone other than the person, such as paying for school fees 
• Removal of cash assets, which reduces the size of the person’s estate

(GOV.UK)

Whether an LPA, EPA or deputy, those responsible will need to consider several factors when determining whether to gift on behalf of the person. These include their financial situation and the potential impact on their estate at the time of the gift. They should also consider any future implications, such as future and present needs, including formal care (deprivation of assets) and support.

The intended gift should not affect their daily spending and overall income. Furthermore, any instructions or wishes contained within an LPA should be carefully considered. Importantly, the decision would need to be carefully considered to ensure it is in the person’s best interest to make the proposed gift. Would the person have wished to make this gift if they had the capacity to do so, or did they perhaps have a history of making similar gifts prior to losing capacity?

The person may have previously expressed wishes regarding gifting, which would also need to be considered. Any gift proposed should also take into account the relationship between the donor and the proposed recipient and whether it might impact upon their existing Will and intended beneficiaries. The implications of inheritance tax and the person’s life expectancy should also be considered, and we recommend seeking legal advice to support your navigation of the proposed gift and legal implications. 

Our mental capacity assessors are highly experienced in applications to the Court of Protection, including gifting capacity assessments and other matters requiring Court approval. To find out how we can support your gifting enquiry, please contact our friendly and experienced team today by phone or by completing one of our contact forms which can be found here and we will be in touch promptly to discuss your needs.