If I give my son my £25k stamp collection must I prove it for IHT?

I would like to gift my stamp collection to my adult son before I die. The collection is worth approximately £25,000.

Do I have to give him a formal dated letter to prove it was a gift and when the gift was made? Can you suggest a format for the letter?

Gift to son: Are there any tax or other implications if you give away a stamp collection?

We asked Jennie Pratt, partner, and Jack Burroughs, associate, at Ashtons Legal to answer your question. Ashtons is a member of the STEP trade body of inheritance professionals. They reply:

You can legally make a gift of your stamp collection simply by handing it over to your son.

However, as your son may need to show that you have made the gift, a letter to him confirming it might be wise.

Also, gifts may have tax and other implications, and it’s worth checking these so as to avoid an unexpected bill.

How might the gift affect inheritance tax? 

The gift of your stamp collection to your son is a ‘potentially exempt transfer’ for inheritance tax, so unless you die in the next seven years it will be exempt.

A record of the date of the gift is therefore important.

If you do die within seven years then in practice, unless you have made significant gifts previously, this would fall within your nil rate band (currently £325,000) and be free of inheritance tax.

10 ways to avoid inheritance tax legally 

How do you stop the taxman grabbing a big chunk of your estate from your loved ones. Read more here.

It would however reduce the nil rate band available to your estate. This means more of your estate could be subject to inheritance tax.

If the gifts you make during the last seven years of your life come to more than the £325,000 nil rate band, the excess gifts would be subject to inheritance tax.

The tax on these excess gifts is payable by the recipient. It may be reduced depending on how many years you live after making the gift. There is a sliding scale which you can find details of here.

Do you have to pay capital gains tax?

Capital gains tax also applies even though you are not selling the collection. As you are giving it to a connected person you will be treated as disposing of the collection for its market value.

Where the whole collection is worth more than the individual stamps, it needs to be valued as a collection (even if you gave it in instalments).

If you paid less for the stamps than the collection is currently worth, there could be capital gains tax payable, provided the collection is now worth more than the ‘chattel’ exemption of £6,000.

You will have an annual exempt amount that may cover the gain (£12,000 for the 2019/20 tax year) but do check whether this has been used up – for example, if you have changed any investments in the same tax year.

If capital gains tax is payable, then you would declare this on your tax return.

It can be difficult to work out the cost of a collection assembled over years, so it is a good idea to keep records in case you sell or give it away in future.

Jennie Pratt and Jack Burroughs of Ashtons Legal: 'As your son may need to show that you have made the gift, a letter to him confirming it might be wise'

Jennie Pratt and Jack Burroughs of Ashtons Legal: ‘As your son may need to show that you have made the gift, a letter to him confirming it might be wise’

What if your local council has to pay for your care?

If you ever require care in the future, and qualify for public funding, your local authority will be entitled to look into any gifts you might have made with the intention of reducing your payments for care fees under the ‘deprivation of assets’ rules.

This means it could ignore a £25,000 gift when it comes to calculating your contribution towards care fees, which it would otherwise have to fund. 

There is no time limit on local authorities’ ability to do this, so it won’t matter how long ago the gift was made.

It is therefore worth recording the purpose behind the gift to your son in a letter.

However, if when you make the gift you are fit and healthy with no reason to expect you will need care in the future, the local authority is unlikely to need any further evidence of your intention behind the gift. 

What should you put in a letter about the gift?

You can record the gift with a letter, signed by you and dated, stating that you are giving the collection to your son on that date and the reason why.

Take a copy to put with your will, along with a copy of any professional valuation (which is useful in case HMRC queries the value).

If there is no professional valuation, keep all the information needed for an expert to value the collection (for instance, a full inventory, and photographs) for at least seven years in case this does prove necessary.

Once you have signed the letter, give it to your son and store your own copy somewhere safe, like with your will, so it is available to your executors should they ever require it. 

Should you bequeath the stamp collection instead?

Alternatively, you might leave the collection to your son in your will.

When he inherits, any gain in value up to your death would be wiped out for capital gains tax purposes.

It would then be subject to inheritance tax, but whether there is a tax liability would depend on the value of the rest of your estate.

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