Find a Solicitor for your Deed of Gift

Are you considering gifting something special to a loved one? Maybe a family heirloom or even your property to safeguard their future? Then, you will need to know what a deed of gift is and how it all works.

In this article, we will be looking at what a deed of gift is, when you would need one and how to go about creating one and ensuring it is legal and valid.

• What is a deed of gift;
• What is a deed of gift with reservation;
• What are the requirements for a deed of gift;
• Deed of gift vs deed of variation;
• Do I need a solicitor for a deed of gift;
• Do you pay tax on a deed of gift;
• How much does a deed of gift cost; 
• How long does a deed of gift take;
• Is a deed of gift proof of ownership;
• Does a deed of gift need to be witnessed;
• Deed of gift and IHT implications;
• Deed of gift and the 7 year rule;
• How to write a deed of gift letter;
• Can a deed of gift be contested;
• Can a deed of gift be reversed; 
• Can I deed of gift a property to a company;
• What is the deed of gift indemnity policy.

What is a Deed of Gift?

Imagine receiving a thoughtful present for your birthday – well that's a bit like what a deed of gift is. It's a legal document used when someone wants to give a valuable item or property to someone else as a gift. This "gift" is often given without expecting anything in return. It’s a straightforward gift of generosity. 

The primary function of a deed of gift is to transfer ownership from the giver (known as the donor) to the recipient (donee). Once the deed is executed, the recipient becomes the legal owner of the gifted item.

The transfer is voluntary and typically involves no consideration or payment from the donee. However, whilst gifts are generally tax-free, there could be inheritance tax implications if the giver passes away within seven years of making the gift.

If gifting a property, the TR1 (Transfer Deed) and AP1 (Application to Register) forms are essential documents used in the process of transferring the ownership. These forms are typically submitted to the Land Registry as part of the property registration process.

Be warned - once a deed of gift is executed, it is generally irreversible. The giver cannot take back the gift unless specific conditions outlined in the deed are not met.

What is a Deed of Gift with Reservation?

Now, imagine wanting to give a valuable possession, like a piece of land or a family heirloom, but you still want to enjoy some benefits from it for a period. This is where the "reservation" part comes in.

In a deed of gift with reservation, the giver (also known as the donor) retains certain rights or benefits associated with the gifted property even after giving it away. For instance, you might decide to gift your house to a family member but reserve the right to live in it for the rest of your life. This would mean that whomever you choose to gift your house to, would only receive that gift when you die.

As is often the case, to make this arrangement legally binding, a deed needs to be created outlining the terms of the gift, specifying the rights being reserved by the donor.

Crafting a Deed of Gift with Reservation requires legal expertise to ensure that the document is clear, enforceable, and complies with relevant laws.

Requirements for a Deed of Gift

Creating a Deed of Gift and making sure it is official involves several key requirements to ensure its valid and can be followed through. 

Some of the essential key requirements are:

• In Writing: The Deed of Gift must be in writing to be legally valid. Verbal gifts are generally not enforceable in a legal context.
• Clear Intention to Gift: The document should clearly express the intention of the giver (donor) to make a gift to the recipient (donee).
• Identification of Parties: The names and details of both the giver and the recipient must be accurately stated in the deed.
• Detailed Description of the Gift: The deed should provide a thorough and precise description of the property, item, or asset being gifted. This helps avoid confusion or disputes in the future.
• Acceptance by the Recipient: The recipient must formally accept the gift, acknowledging their understanding and agreement to the terms outlined in the deed.
• Delivery of the Gift: There must be an actual or symbolic delivery of the gift. In the case of tangible items, physical transfer is necessary. For financial assets or property, relevant documentation or processes should be completed.
• Voluntariness: The gift should be given willingly and without any coercion or undue influence. Both parties must enter into the arrangement freely.
• Legal Capacity: Both the giver and the recipient must have the legal capacity to enter into such an agreement. This means they should be of sound mind, not under the influence of substances, and of an age where they can legally make contracts.
• Presence of Witnesses: While not always a strict requirement, having witnesses can add an extra layer of credibility to the deed. Witnesses should be impartial and not benefit from the gift.

While not mandatory, seeking legal advice is highly recommended. A solicitor can ensure that the deed is correctly drafted, covers all necessary elements, and complies with relevant laws.

Stamp Duty Considerations

Depending on the value of the gift, stamp duty may be applicable. You must consider and address any stamp duty requirements associated with the transfer.

Remember that laws may evolve, and it's advisable to consult with a legal professional to ensure compliance with the most up-to-date regulations.

Deed of Gift vs Deed of Variation

Whilst a deed of gift is used when someone wishes to give a valuable item, property, or asset to another person whilst they are still alive, a deed of variation is used when beneficiaries of an estate wish to change the distribution of assets specified in a will or under intestacy laws after the death of the testator.

So, instead of receiving their designated share, beneficiaries can vary the terms to redistribute assets among themselves or redirect them to other beneficiaries.

One common use of a deed of variation is for tax planning purposes. It allows beneficiaries to potentially reduce the overall tax liability of the estate.

To be effective for tax purposes, a deed of variation usually needs to be executed within two years of the deceased's death.

A summary of the key differences:

Nature of Transaction:

• A Deed of Gift involves a voluntary transfer of ownership from one living person to another without expecting anything in return.
• A Deed of Variation involves altering the distribution of assets after someone has passed away, typically to achieve tax benefits or better suit beneficiaries' needs.

Timing:

• A Deed of Gift can be executed at any time when the donor is alive.
• A Deed of Variation is typically executed within two years of the deceased's death for tax planning purposes.

Do I Need a Solicitor for a Deed of Gift?

Simply put: No. It is not a legal requirement to involve a solicitor in the creation of a deed of gift, however seeking professional legal advice is highly advisable and can offer several benefits, particularly where there may be potential inheritance tax implications to consider.

Getting a solicitor involved can be like having a guide on this legal journey. While you can create a deed of gift on your own, having a solicitor ensures everything is done correctly and helps avoid potential problems down the road. 

Do You Pay Tax on a Deed of Gift?

Ah, the tax question. Whilst gifts are generally tax-free, there are some exceptions. 

I’m sure you’ve heard of Inheritance Tax - well this is a tax on the estate of someone who has passed away. Gifts made during a person's lifetime are subject to Inheritance Tax if the giver (donor) passes away within seven years of making the gift.

The magic "seven-year rule" is crucial to understanding the potential tax implications of a gift. If the donor survives for seven years after making the gift, it is generally exempt from Inheritance Tax.

Gifts are categorised as Potentially Exempt Transfers (PETs) if they are made with the expectation that the donor will live for at least seven years. If the donor passes away within this period, the value of the gift may be included in their estate for Inheritance Tax purposes.

Certain gifts are exempt from Inheritance Tax, regardless of the seven-year rule. This includes gifts between spouses or civil partners, gifts to registered charities, and gifts up to the annual exemption limit.

Each individual has an annual exemption limit, allowing them to give a certain amount each tax year without incurring Inheritance Tax. If the gift exceeds this limit, it may be subject to tax.

There is also a small gifts exemption, allowing individuals to make small gifts of up to a certain amount to any number of people each tax year without it being subject to Inheritance Tax.

How Much Does a Deed of Gift Cost?

The cost can vary, but it's usually a reasonable price to ensure everything is done correctly. 

As with anything, the type of assets being gifted can impact the cost. For example, transferring a property through a deed of gift may involve additional complexities and paperwork compared to a simpler gift of personal belongings.

Also, if additional services are required, such as tax advice, notarisation, or witnessing, these may incur extra costs.

At Lawhive, we can assess your case within 48 hours, giving you a no obligation quote so you have all the information you need to proceed quickly and with no hidden fees. 

How Long Does a Deed of Gift Take?

Patience is key with a deed of gift. The process can take some time depending on your individual circumstances, nature and complexity of the gift, and the legal advice needed throughout the process. 

In simple gifting cases, the time it takes would be much shorter. 

Is a Deed of Gift Proof of Ownership?

Absolutely! A deed of gift is like a legal certificate saying, "This is now yours!" It's solid proof that the gift has officially changed hands and acts as a proof of ownership for the transferred property or asset.

Does a Deed of Gift Need to Be Witnessed?

Yes, indeed. A deed of gift needs to be witnessed as it adds an extra layer of security, and ensures it is legally valid. The presence of witnesses helps confirm that the donor executed the deed voluntarily and that the contents of the document accurately represent their intentions.

Generally, a deed of gift requires at least one witness. However, having two or more witnesses is common practice and can provide additional assurance of the deed's authenticity.

Witnesses should also be adults, mentally competent, and not beneficiaries of the gift. They must be impartial and have no vested interest in the transaction.

In the event of a legal dispute or challenge to the deed, witnesses may be called upon to provide testimony regarding the circumstances surrounding the execution of the deed of gift.

While notarisation is a separate process involving a Notary Public, witnessing serves a similar purpose in confirming the authenticity of the document. Some legal documents, including deeds, may require both witnessing and notarisation for added assurance.

Deed of Gift and IHT Implications

Now, about that inheritance tax we mentioned earlier. If the giver passes away within seven years, the value of the gift might be taxed. 

Check out this article for more details: 3 Tax Implications To Consider Before Gifting Property

Deed of Gift and the 7-Year Rule

Generally, the seven-year rule is fundamental when it comes to gifts and Inheritance Tax. If the donor survives for seven years after making the gift, the value of the gift is generally exempt from Inheritance Tax.

If the donor passes away within seven years of making the gift, the value of the gift may be subject to Inheritance Tax. The tax liability reduces on a sliding scale based on the number of years between the gift and the donor's death.

Taper relief is applied to reduce the Inheritance Tax liability on gifts made within the seven-year period. The longer the donor survives after making the gift, the lower the tax rate on the gifted amount.

Gifts to certain types of trusts may have immediate Inheritance Tax implications, and special rules apply. Seeking professional advice is crucial when considering gifts to trusts.

How to Write a Deed of Gift Letter

Writing a Deed of Gift letter involves clearly expressing your intention to gift a specific property or asset to the recipient. While it's advisable to seek legal advice for drafting such a document, here is a basic template to guide you. 

Note that this template is a general guide and may need to be adapted based on your specific circumstances.

Deed of Gift

I, [Your Full Name], residing at [Your Address], hereby declare my intention to make a gift of the following property/item to you, [Recipient's Full Name], residing at [Recipient's Address]:

Description of the Gift

[List the detailed description of the property or asset being gifted.]

Transfer of Ownership

I confirm that I am voluntarily transferring all ownership rights, title, and interest in the aforementioned property/item to you without any expectation of consideration or payment in return.

Consideration

This gift is made without any legal or financial obligation on your part.

Witnesses

This Deed of Gift is witnessed by:

[Name of Witness 1]

Address: [Address of Witness 1]

[Name of Witness 2]

Address: [Address of Witness 2]

Declaration

I declare that I am of sound mind, not under any undue influence, and that this Deed of Gift represents my free and voluntary act.

Acceptance

I, [Recipient's Full Name], hereby acknowledge the receipt of the above-mentioned gift and accept it in accordance with the terms outlined in this Deed of Gift.

Can a Deed of Gift Be Contested?

While it's uncommon, it's not impossible. Having everything done properly and with legal guidance reduces the chances of this happening.

Contesting a deed of gift typically involves challenging the validity of the document or arguing that the gift was made under undue influence, fraud, duress, or incapacity.

It's essential to note that contesting a deed of gift can be a complex legal process. Parties considering contestation or defending against a contestation should seek legal advice promptly.

Can a Deed of Gift Be Reversed?

Once the gift is given, it's usually permanent. When complete, the transfer of ownership becomes legally binding, and reversing the gift may require specific legal grounds. 

Here are some scenarios in which a deed of gift might be subject to a reversal:

Mutual Agreement - If both the donor and the donee mutually agree to reverse the gift, they may be able to do so through a subsequent legal agreement. This typically involves drafting a new document that revokes or amends the original Deed of Gift.

Failure of Condition - If the Deed of Gift includes specific conditions, and those conditions are not met, the gift might be subject to reconsideration. For example, if the donor specified certain obligations that the donee fails to fulfill, the donor may seek to reverse the gift.

Lack of Legal Formalities - If the Deed of Gift was not executed following proper legal formalities, such as witnessing, it might be challenged on grounds of procedural irregularities.

Fraud or Undue Influence - If the donor can prove that the Deed of Gift was executed under fraudulent circumstances or undue influence, a court might consider setting aside the gift.

Mental Incapacity - If the donor lacked the mental capacity to understand the implications of the gift at the time of execution, the validity of the Deed of Gift may be contested.

Public Policy or Illegality - If the gift violates public policy or is illegal, it might be subject to reversal. For instance, if the gift involves illegal activities or contravenes statutory law, a court may set it aside.

Rectification or Rescission - In certain cases, legal remedies such as rectification or rescission might be sought to correct or undo a Deed of Gift. These remedies are typically based on legal errors or mistakes in the deed.

It's also worth mentioning that disputes over gifts often lead to litigation, and resolution may involve court proceedings.

Can I Deed of Gift a Property to a Company?

Yes, it is possible to deed a property to a company through a process known as a "Transfer of Property to a Company" or "Transfer of Equity." However, there are several considerations and legal requirements to keep in mind, such as Stamp Duty and Land Tax; company structure; shareholder approval; valuation of the property and more. 

You will also need to follow legal formalities, including the TR1 and AP1 forms, as discussed earlier on.

Before proceeding with the transfer of property to a company, you should consult with legal and tax professionals to ensure that all legal requirements are met and to assess the potential tax implications associated with the transaction.

What Is the Deed of Gift Indemnity Policy?

A deed of gift indemnity policy is a form of insurance that provides protection to the parties involved in a deed of gift transaction, particularly the donor. This type of policy is often used in situations where there might be a risk or uncertainty associated with the gifted property, and the donor wishes to protect themselves from potential future claims or liabilities.

The policy is designed to protect the donor from financial losses that may result from legal challenges or defects in the title of the gifted property. It provides a level of assurance to the donor that they will not be personally liable for certain risks associated with the property.

The coverage period of the policy is typically ongoing, providing protection for as long as the risk or potential claim remains within the policy's terms and conditions.

Get help with a Deed of Gift from Lawhive

If you need assistance with a deed of gift, Lawhive can help with a 30-minute telephone or video call. Contact us today to get a free case assessment in as little as 48 hours.

We offer:

• A 30 minute telephone or video call 
• Deed of Gift drafting
• Draft TR1 and AP1 and ensure this forwarded to the donee/transferee (new owners) or their solicitors 
• Oversee the completion of the deed to ensure it is executed correctly.

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