View more on these topics

Case study: Gifting rules under lasting power of attorney

Family - thumbnailPaul has been appointed as the attorney for his father Jack. The lasting power of attorney was created several years ago but it has never been used.

Jack can no longer make decisions for himself and therefore it is now up to Paul to make these decisions on his behalf.

Paul’s younger brother Wayne is getting married and he wants to make a substantial gift from Jack. Paul knows this is what his father would have done if he were able. Jack has a considerable estate, so Paul knows making a large gift will also help reduce the estate for inheritance tax purposes.

Paul is unsure whether there are any limits to what he can gift using the lasting power of attorney, so he contacts his adviser for help.

The advice

When one thinks about gifts, it is often in the context of a birthday or Christmas present. However, lending money to an individual and not charging interest is also classed as a gift. As is selling a property for less than the current market value or creating a trust and placing assets into it.

An attorney has a duty of care and a legal obligation to act within the law and the scope of the powers granted to them. They may think they are making gifts they would expect the donor to have made but, in reality, there is limited scope.

The law states an attorney can only make a gift if it is either:

  1. To a family member, friend or acquaintance of the person on a customary occasion (for example, birthday, wedding, Christmas or Diwali).
  2. To a charity.

In both cases, it is essential the attorney is acting in the best interests of the donor and that the gift is of a reasonable value given the size of the estate.

Any large gifts must be authorised by the Court of Protection, with the attorney putting a case forward detailing their proposals and reasons behind the gift.

Gifts are allowed to be made without application to the court in certain situations.

In particular, if the person’s estate is worth more than £325,000, exceptions can be made to cover the annual IHT exemption of £3,000 and the annual small gifts exemption of £250 per person up to a maximum of 10 people – a total of £5,500 – when:

  • The person has a life expectancy of less than five years.
  • Their estate is worth more than the nil rate band for IHT purposes (currently £325,000).
  • The gifts are affordable, taking into account the person’s care costs, and will not adversely affect their standard of care and quality of life.
  • There is no evidence the person would be opposed to gifts of this value being made on their behalf.

So, an attorney can gift small amounts up the IHT exemption but anything above this would be classed as IHT planning – an activity that cannot be carried out without the court’s permission.

Thus, if Paul wants to make a gift larger than the annual exemption to his brother, he will have to seek authority before he can do so.

Helen O’Hagan is a technical manager in Prudential’s Technical team


Dennis Hall

Dennis Hall: Why we are reducing portfolios to just one fund

If you agree with the premise that funds with high charges generally underperform those with low charges, then you must also agree a portfolio that accrues high costs will generally underperform one with lower costs. And if you accept this, the obvious conclusion is to hack away anything that increases that cost. Switching from higher-priced […]


FCA takes on introducers behind £86m in pension transfers

The FCA has revealed it is pursuing two unregulated introducers involved in the transfer of at least £86m in pension assets from over 2,000 customers. In the watchdog’s monthly round-up, FCA executive director for enforcement and market oversight Mark Steward discusses how the FCA is approaching fraudsters as a new advertising campaign launched earlier in […]


Paul Armson: How standard financial planning can fail clients

I am often asked what the difference is between financial planning and lifestyle financial planning. It is a question I love to answer by relating a true story. Imagine the scene: two advisers, both seeing the same married couple as potential clients. Adviser A is a highly qualified (chartered and certified) financial planner. Adviser B […]

Bring social risks into global stock analysis

Peter Rutter, Head of Equities at Royal London Asset Management, explains the importance of considering social risks when analysing stocks for selection, as including analysis from this angle can often provide some surprising results. Read the article here. Past performance is not a guide to future performance. The value of investments and the income from […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm