Helping family with money during your lifetime is one of the most natural things in the world. A deposit that turns a rented flat into a first home. A contribution towards university costs. A sum passed on early, so there is less to untangle later. However, it is also easy to get wrong. A gift is generally irreversible, and the consequences can surface years later, at the worst possible moment.

Can you genuinely afford it? 

This is possibly the question asked least, and the one that matters most.

Once money is given away, it is gone. You have no right to ask for it back and, if your circumstances change whether through ill health or simply living far longer than expected, you cannot rely on getting it returned. Even willing family members may have spent it by then.

So before making a significant gift, think about future care costs, home adaptations, a period without income, and the standard of living you want to keep. A gift that leaves you dependent on the person you gave it to is not generosity, it is a problem waiting to happen.

What do the tax rules allow?

Inheritance tax is set at UK level and applies in Scotland as it does elsewhere. Several types of gift fall outside the calculation straight away:

• An annual allowance of £3,000, which can be split between people, with one unused year carried forward.
• Small gifts of up to £250 each to any number of separate individuals, though not to someone already given part of your annual allowance.
• Wedding or civil partnership gifts, at a higher level for a child than for a grandchild or anyone else.
• Regular gifts out of surplus income, provided they form a genuine pattern and do not reduce your standard of living.
• Gifts between spouses and civil partners.

Anything larger is generally a potentially exempt transfer. Survive seven years and it falls out of your estate entirely. Die within that period and it is brought back into the calculation, with the rate reducing on a sliding scale after three years.

These allowances are reviewed regularly and have attracted much speculation in recent Budgets, so confirm the current position rather than relying on a plan made years ago.

Why the seven-year rule will not protect you from care costs

People often assume that surviving seven years puts a gift beyond reach for every purpose. It does not. The seven-year rule is a tax rule, and it has nothing to do with how your local council assesses you for care home fees.

In Scotland there is no fixed period beyond which a council cannot look back at money you have given away. If it concludes that a significant reason for the gift was to reduce what you would pay towards your care, it can assess you as though you still hold the money, and in some circumstances pursue the person who received it.

We have set out how that assessment works in our article on care home fees in Scotland. The seven-year clock does nothing for you in that context. 

Fairness between children, and a Scottish complication

Gifting unequally between family members is entirely your right. Families are rarely symmetrical, and one child may need help when another does not.

The difficulty arises when nobody says so out loud. A son or daughter who learns after a parent's death that a sibling was helped substantially years earlier will often feel something was concealed, and that feeling is a common starting point for lasting family disputes.

Scotland adds a further layer. Children have Legal Rights over a parent's moveable estate, meaning cash, savings and investments rather than land or buildings. Those rights cannot be defeated by a Will. Where more than one child claims Legal Rights, certain lifetime advances to one of them may have to be brought into account, so the fund is shared more evenly between those claiming. Not every gift is caught and the rules are technical, but it can take a family by surprise when they assumed a gift made long ago had no further relevance.

A short letter recording what you gave, to whom, when and why, kept alongside your Will, costs nothing and removes a great deal of doubt.

Is it a gift or a loan? Decide at the time

Where money is going towards a house purchasee, this matters enormously. Mortgage lenders want written confirmation that a deposit contribution is a gift rather than a loan, because a loan affects what the borrower can afford. Equally, if the purchase is with a partner and the relationship later ends, an undocumented contribution is very hard to trace or recover.

Decide which it is, record it in writing at the time, and tell the solicitor handling the purchase.

If someone may be gifting on your behalf

If you hold Power of Attorney for someone, you cannot make gifts from the granter's funds unless the Power of Attorney expressly gives you that power. Scottish documents are interpreted strictly and, unlike elsewhere in the UK, there is no route to have an unauthorised gift approved after the event. Gifts made without proper authority can be challenged, recovered, and treated as still forming part of the estate.

If this is something you might want done on your behalf, it must be built into the document when it is drawn up.

How Paris Steele Can Help

Gifting works best when planned. Paris Steele's Private Client team can talk through what you can comfortably afford, how a gift might sit alongside your Will and wider estate planning, and how to record it properly.

To speak to us, call our North Berwick office on 01620 892138 or our Dunbar office on 01368 862746, or get in touch online.

This article is provided for general information purposes only and is not intended to constitute legal advice. The information contained in this article is accurate to the best of our knowledge as at the date of publication. As laws, regulations, guidance, and other relevant information may change over time, the content of this article may no longer reflect the current position.

The information contained herein may not apply to your specific circumstances and should not be relied upon as a substitute for professional legal advice.

If you require advice about your own situation, we recommend that you seek advice from a qualified solicitor. If you would like to discuss your circumstances or find out how we may be able to assist, please do not hesitate to contact our team for advice tailored to your individual needs.