Gift Duty Abolition

Article published in New Zealand, September 2011

Gift duty is due to be abolished from 1 October 2011. I asked Kevin Jones and Amber Nell of Jones Law to provide their thoughts on what this might mean for family trusts, especially those used by families who have settled here from overseas.

Kevin Jones and Amber Nell are internationally qualified and practise in the areas of cross-border tax planning, estate planning and acquisition structuring.

The abolition of gift duty, while superficially attractive, is fraught with risk.

Until 1 October, the $27,000 limit on gifts that can be made without incurring gift duty has served as a silent safety net. Once this impediment to making large one-off gifts is removed, the risks of subjecting yourself to claims for inappropriate devolving of personal wealth are increased.

In the New Zealand context, it pays to be aware of the risks of creditor claims, relationship property claims and the impact of gifting assets on your ability to claim government subsidies. In particular, you will need to ensure that by making a one-off gift to a trust, you are not making yourself technically insolvent.

For those from the United Kingdom, a transfer of wealth over and above the current threshold of £325,000 may, without proper structuring, trigger an immediate 20% charge to UK inheritance tax, followed by a further tax charge every ten years, and tax charges when assets are distributed from the trust. The ongoing management of domicile status, and the proper structuring and funding of the trust, are accordingly critical for UK families.

United States citizens need to ensure that their family trust is structured in a manner that ensures the trust is “looked through” for United States tax purposes or they may otherwise face an unwanted US gift tax bill on the value transferred to the Trust.

We encourage you to seek professional advice on your particular circumstances before making significant gifts.

The above article is provided for general information purposes and does not constitute legal advice.

We invite you to contact us at info@jones-law.co.nz to discuss your specific circumstances.

Enquiry Form