Make sure your gift won't turn into a poisoned chalice - Jennifer Wilkie
The desire to pass on wealth to future generations is a natural human instinct. As the government introduces changes to tax regimes, lifetime gifting is likely to increase.
Gifting is not a new concept. We have long seen parents looking to pass on assets to their children, to fund a house purchase and allow wealth to be retained for the benefit of the family overall.
Advertisement
Hide AdAdvertisement
Hide AdHowever, each gift usually comes with a responsibility or consequence that may not be immediately apparent. The implications of the gift may not arise until a later point or life event, either for the person making the gift or the recipient of it.


One such example would be relationship breakdown. In Scotland, if a couple divorce and there is no pre-nuptial agreement in place, the value of assets accumulated during the marriage is shared.
Excluded from this are gifts or inheritances received from someone outside the marriage. If someone receives a cash gift and leaves it untouched in a bank account, it will not form part of the assets to be shared on divorce.
However, if the gifted money has been used to purchase something else or, for example, to pay down a mortgage on a jointly-owned house, the immediate protection of the gift is lost. Instead, we are left with a decision over whether the source of those funds should be taken into account.
Advertisement
Hide AdAdvertisement
Hide AdThis is entirely discretionary and if agreement cannot be reached, a court might need to intervene to determine the extent to which the gifted amount should be factored in. Like anything where the answer is not black or white, there is scope for disagreement.
People don’t tend to keep separate bank accounts for money from income, and money received from gifts. The two can easily become intermingled, particularly over a long period.
Matters are particularly complicated where a gift is paid with a specific intention to a child, but not clearly recorded in that way. Most common is where a parent has gifted money to a child to purchase a home, but the money is paid to the child and their partner/spouse to buy the property together.
There are also issues for business owner-managers, who might consider gifting shares to children. This often comes about as part of succession and tax planning.
Advertisement
Hide AdAdvertisement
Hide AdIf shares are gifted, it is important this is clearly recorded. If a consideration is paid for the shares, they will not be deemed a gift. Instead, the shares will be treated as matrimonial property and their value subject to the sharing exercise on divorce.
If shares are gifted, they will be protected from a matrimonial law perspective. However, keep in mind that cash paid in respect of the shares, for example from dividends, or upon the sale of the shares, will not benefit from this protection.
Similarly, if the company is later restructured and the shareholding fundamentally changes (for example, by a new company being put on top), the newly-acquired or classified shares will in the first instance be treated as matrimonial property and subject to the sharing exercise. This will be the case even if the company continues to be owned by the same family – often missed in tax planning discussions.
There are many other considerations around gifting, such as capital gains and inheritance tax liabilities.
If it’s something you’re looking at, it’s worth taking proper advice to ensure your gift doesn’t become a poisoned chalice further down the line.
Jennifer Wilkie is a Partner, Burness Paull LLP
Comments
Want to join the conversation? Please or to comment on this article.