Inheritance Tax

Can an attorney make gifts under a power of attorney?

A general (ordinary) power allows an attorney to deal with all of the donor’s personal affairs and this could include the right to make unrestricted gifts.

It contains specific provisions detailing the exact scope of an attorney’s powers and this would have to include the ability to make significant gifts.

Firstly you must look at the power of attorney as the donor could exclude or restrict the power to make gifts. Look in part B of an enduring power or section 6 on page 9 of the lasting version.

The question is whether an LPA can extend the powers of the attorney to enable them to make gifts. The legislation is silent on this point, but legal opinion is that if the making of gifts can be restricted by the LPA on the one hand, there is no logical reason why it cannot alternatively be used to extend the powers.

The legislation referred to in the paragraph above is the Mental Capacity Act (MCA).
If there is nothing added to the provisions of the power, paragraph 3(3) of Part 1 of Schedule 4 of the MCA authorises an attorney under an enduring power to make gifts in certain circumstances.

‘(3) Without prejudice to sub-paragraph (2) but subject to any conditions or restrictions contained in the instrument, an attorney under an enduring power, whether general or limited, may (without obtaining any consent) dispose of the property of the donor by way of gift to the following extent but no further –

(a) he may make gifts of a seasonal nature or at a time, or on an anniversary, of a birth, a marriage or the formation of a civil partnership, to persons (including himself) who are related to or connected with the donor, and

(b) he may make gifts to any charity to whom the donor made or might be expected to make gifts, provided that the value of each such gift is not unreasonable having regard to all the circumstances and in particular the size of the donor’s estate’.

For a lasting power, section 12 of the MCA provides that an attorney may make gifts in the following limited circumstances:

(2) the Donee may make gifts –

(a) on customary occasions to persons (including himself) who are related to or connected with the donor, or

(b) to any charity to whom the donor made or might have been expected to make gifts,

if the value of each such gift is not unreasonable having regard to all the circumstances, and, in particular, the size of the donor’s estate.

(3) ‘Customary occasion’ means –

(a) the occasion or anniversary of a birth, a marriage or the formation of a civil partnership, or

(b) any other occasion on which presents are customarily given within families or among friends or associates.

(4) Subsection (2) is subject to any conditions or restrictions in the instrument’.

There are three points you need to consider as regards gifts:

  • The recipient of a gift must be either related to, or connected with, the donor or is a charity to which the donor actually made gifts – or might have made gifts if they had mental capacity.

    There is no definition of ‘related’ or ‘connected’. In many cases it will be clear that the person to benefit is related or connected but there could be problems in deciding if an acquaintance is connected with the donor.

    ‘Charity’ is clear cut if the donor has supported the charity in the past but it might be difficult to justify a gift to a charity which the donor has never supported.
  • The timing of the gift must occur within the prescribed parameters. A gift to charity can be made at any time of the year, but a gift to an individual must be of a seasonal nature, or made on the occasion of a birth, marriage or civil partnership, or on the anniversary of a birth or marriage or civil partnership.

  • The value of the gift must not be unreasonable having regard to all the circumstances and in particular the size of the donor’s estate.

    However, there is no clear definition of what is reasonable or unreasonable. Gifts of £5, £10 or £20 are probably in order unless the estate is very small.
    Gifts of £1,000 out of an estate in excess of £500,000 would clearly be permissible but if the estate is under £10,000 that would probably be unreasonable.

    A word of warning: you need to look at the points together not individually. What about a gift to a close relative with whom the donor has had no contact for years, would this be reasonable? Probably not.

    The Court of Protection can authorise the attorney(s) to act so as to benefit themselves or others.

    This is provided that there are no restrictions in the power itself and that the court is satisfied that this would be in the donor’s best interests.

    Section 23(4) of MCA says:

    ‘ the court may authorise the making of gifts which are not within s.12(2) (permitted gifts)’.

If it is desired to make a gift larger than permitted under the MCA or the power of attorney, it is necessary to obtain the sanction of the Court of Protection. If the sanction of the Court of Protection is not obtained, then HM Revenue & Customs (HMRC) will not accept the gift as being valid for inheritance tax (IHT) purposes.

The situation where a gift of this nature would be appropriate is if the donor was wealthy and it was desirable to make some transfers in an attempt to save IHT.

The Court of Protection can sanction such a gift as long as it is not going to prejudice the payment of care home fees for the donor. In view of the attitude of HMRC, it is probably best not to rely on just extending the power of the attorney to make gifts but to obtain the sanction of the Court to any tax planning scheme.

Other proposals that go beyond the powers of an attorney and that will need the sanction of the Court are:

  • the purchase of an insurance product also designed to mitigate tax
  • passing money on ‘because the donor no longer needs it’ as they are adequately provided for and no longer have any need for money apart from paying for nursing home fees

As mentioned previously, gifts of £10 (as are made under this trust) are probably in order. However, the waiving of interest on the subsequent loan could be held to be a gift.

Cases are dealt with on an individual basis so it is best to seek further guidance before taking any action.

If you decide that a large gift is justified, for estate planning purposes, the attorney has to apply to the Court for approval to make one.

Details of making an application are found in Part 9 of the Court of Protection Rules 2007, supplemented by Practice Direction 9F (applications relating to statutory wills, codicils, settlements and other dealings with P’s property). (P is the donor).

If the value of the gift is between £500 and £15,000 you will need to apply to the Court of Protection using form COP1 (application) and COP24 (witness statement).
If the value of the gift exceeds £15,000 you need to apply using forms COP1 (application), COP1A (supporting information), COP2 (permission form), COP3 (assessment of capacity) and COP24 (witness statement). In this instance there will also be a fee of £400 payable to the Court.

The relevant application form being submitted must state:

  • the subject on which the Court must decide;
  • the order the applicant is seeking; and
  • the names of the applicant, donor, any person who the applicant thinks has an interest in the order and any person the applicant will notify

Along with the application the Court of Protection will also need written evidence showing the following information:

  • details of P’s family, preferably in the form of a family tree, including details of the full name and date of birth of each person included in the family tree;
  • details of P’s capital (including any property) with up to date valuations;
  • details of P’s net income and expenditure;
  • a statement showing P’s needs, both current and future estimates, and his general circumstances;
  • details of the proposed gifts – the amount(s), to whom and what the likely changes are if the application is successful;
  • the reason for making the gift and an explanation of the effect, if any, that the proposed changes will have on P’s circumstances, preferably in the form of a ‘before and after’ schedule of assets and income;
  • details of any previous gifts recently made by P;
  • details of any capital gains tax, inheritance tax or income tax which may be chargeable in respect of the subject matter of the application;
  • if the gift is of land details of its location and title number;
  • where the application is for a settlement of property or for the variation of an existing settlement or trust, a draft of the proposed deed, plus one copy;
  • a copy of the registered LPA;
  • confirmation that P is resident in England or Wales;
  • an up to date report of P’s present medical condition, life expectancy, likelihood of requiring increased expenditure in the foreseeable future, and testamentary capacity; and
  • if there is more than one attorney, the court needs confirmation that all attorneys agree with the application.

The Court may direct that other material is to be filed by the applicant, and if it does, the information will be required in the form of a witness statement.

If permission is granted, the Court will return a sealed copy of the grant to the applicant. The applicant must then notify the person to whom the application relates and any other people named in the form.

There is a general rule that trustees are unable to delegate their functions. However, the Trustee Delegation Act 1999 (TDA) arose as a result of donors being unable to delegate their duties as trustee to their attorney without necessary safeguards in place.

The TDA came into force on 1 March 2000 and allows a donor to delegate their duty as trustee to an attorney subject to various safeguards.

In brief these are that a trustee:

  • may by either an ordinary, enduring or lasting power, delegate his functions as trustee for a period of 12 months or any shorter period;
  • must either before or within seven days after giving the power of attorney – give notice to the co-trustee(s) and any person entitled to appoint a new trustee; and
  • is liable for the acts/defaults of the attorney.

There is an ability to renew this power without limit. Guidance on renewing the power can be obtained from a solicitor.

A donor can normally use a lasting power of attorney to delegate their trustee duties for a period of no longer than 12 months.

If the trustee in question has set up an enduring power which has been registered with the Court of Protection, it is reasonable to conclude that they are no longer mentally capable and so unable to act in the role of trustee.

There is a common misunderstanding that in this situation, the attorney will be able to take on trustee functions. In fact, this is only the case if the power was created before 1 March 2000 and successfully registered before 1 March 2001 (section 4, Trustee Delegation Act 1999).

If the trustee has a lasting power, registration of the power can occur at any time – not just after the individual has lost mental capacity, but the power can only be used once it has been registered. The 12 month period would start from the date of registration.

Normally an attorney cannot step into the shoes of a trustee who has lost mental capacity so the remaining trustees must look at other alternatives.

Under our current trusts, if a trustee loses mental capacity, this has an impact even if there are other trustees in place, as all trustees must act together. Therefore, if one trustee is no longer mentally capable, the remaining trustees are prevented from acting.

This means the trustees cannot distribute the trust assets to the beneficiaries, give instructions to totally or partially surrender a policy or set up regular withdrawals.

However, the trust provisions should be looked at to see if there is any power to dismiss a trustee who has lost mental capacity.

Problems can be avoided if a trustee, who has been identified as developing dementia and being at risk of losing mental capacity, resigns at an early stage. A trustee can retire without being replaced, provided that at least two trustees remain and all co-trustees agree to the retirement (section 39(1), Trustee Act 1925).


This briefing note has been prepared for professional adviser use only.

The information regarding taxation is based on our understanding of current legislation as at June 2016, which may be altered and depends on the individual financial circumstances of the investor. We recommend investors take their own professional tax advice.

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