A smiling carer chats with an elderly lady

Reducing the tax bill – gifts by attorneys

Last week I spoke to an audience of financial advisers at a seminar. One of the areas that generated a lot of questions was the difficulties of tax planning when an attorney or deputy has been appointed.

The things you can do under a deputy order, enduring power of attorney or lasting power of attorney are actually very restricted. People have all kinds of ideas about want they can do when they are appointed to make decisions for a loved one that has lost their mental capacity.

Most of the time they are misconceptions but they can be costly nevertheless. At some point the mistake will need to be rectified. It may be picked up by HMRC when the loved one dies or by a disgruntled beneficiary of the will but it probably will be picked up.

“It is what Gran would have wanted”?

“John always gave us that amount every year”.

This might seem reasonable to the attorney but in fact the only gifts that can be made by an attorney are to charities that the donor supported or small gifts at usual present giving times like Christmas. Even if a power of attorney says that you can make gifts for tax planning it’s likely that this is invalid so following the direction is inadvisable.

“But Dad has so much money that he doesn’t need. Surely it makes sense to try to reduce the tax that would be paid when he dies?”

Yes it does, but make sure that you do it the right way as much Inheritance tax planning involves making gifts. Doing it the right way means applying to the Court of Protection for it to approve the gift. The Court will agree if they think that it is in Dad’s best interests to do so and are satisfied that he will still have enough money to pay for all his needs now and in the future.

The Court will require a fair amount of information to make the decision and they will probably ask the Official Solicitor to make sure Dad’s interests are looked after.

If carried out in the right way with a Court order a great deal of planning is possible, including gifts and giving up entitlements under other people’s wills, so potentially reducing the tax bill for the future. So it is well worth taking advice to make sure that you get this right.