Most commonly found in the legal world, a Deed of Gift is a signed document which legally transfers ownership of real, personal, and intellectual property to someone new – whether it be an individual, charity or institution.
What are some examples of a Deed of Gift?
Though some confuse it with part of a Will and Testament, a Deed of Gift is made when the Donor is still alive and wants to simply transfer formal ownership of an object, money or gift in kind. It is not a legally required document for the exchange of a gift, but rather is used to protect the interests of both parties when a Donor decides to gift something high in value to a Donee.
Common examples include:
- The gifting of objects or property, for instance when a historian chooses to gift some ancient documents to a museum for public consumption, or when a wealthy family choose to gift property to a charity such as the National Trust. These kinds of donations, as with other Deeds of Gift, are unconditional, passing complete ownership from the family or individual over to the institution which will use them.
- A cash gift is one where a sum of money is transferred, often to family members or charitable organisations whom the Donor wishes to support with immediate effect.
- Gifting shares is a long-term investment and is often regarded as a way to future-proof family members or the income of an organisation; providing them with long-term wealth rather than an immediately accessible monetary deed of gift.
What are the defining features of a Deed of Gift?
In order for it to be considered a gift in full, one of the primary conditions is that the Deed of Gift remains irrevocable and entirely unconditional. Once ownership of the gift has been signed over to the Donee, the Donor is not able to retain any stakes or interest in the object or gift.
The other defining feature linked to a Deed of Gift is the absence of any kind of payment – that is, the gift is received by the Donee, with no transfer of money or payment in kind for the gift.
When do you need a Deed of Gift?
In short, a Deed of Gift is required when the interest of both the Donor and the Donee need to be protected during the transfer of ownership.
Provided the Donor lives for at least seven years after the gifting has been transferred, the gift is not subject to Inheritance Tax and so it exists outside of their general Estate. In line with the current tax rules in the UK, any cash amount will only be subject to inheritance tax if the Donor dies within 7 years of the Deed of Gift being signed. However, if the Donor does die within 7 years then the standard inheritance tax will be due.
Due to this condition and the reduction of inheritance tax provided the Donor lives for more than 7 years beyond the gift being made, Deed of Gift’s are often used by those trying to reduce their families exposure to inheritance tax in the future when they do die – enabling them to sign property, cash gifts, shares and other valuable objects over to their family in advance – and before inheritance tax comes into play.