TalkTax

When you think your relationship can’t get any worse, and you’ve given until it hurts, you can then find yourself with a gift duty assessment…

With the Government Tax Policy Work Programme having confirmed that further legislative exemptions from gift duty are under consideration, it is perhaps timely to review relationship property agreements and gift duty, an area where gift duty and filing obligations are often over-looked or misunderstood.

There is a specific exemption for dispositions pursuant to a relationship property agreement (Estate and Gift Duties Act 1968, 75A (2)).  However, this exemption only applies where the parties share equally in the pool of relationship property.  Further, regardless of the value of any disposition (that is the $12,000 threshold that applies to other gifts does not apply) the parties are required to file a copy of the relationship property agreement (75A (6)).  The parties can file an IR 183 together with the relationship property agreement.  Although good practice, this is not essential. The penalty provisions of the Tax Administration Act 1994 apply for the purposes of s. 75A (6).

What this all means is that if you are the loser in the relationship property divvy up, you have made a gift for gift duty purposes to the extent of half the value of the difference between what you got and what the other party got.  If this difference is less than the gift duty threshold (together with any other gifts you have made) your pain has ended.  However, if the difference is significant, you could have a gift duty liability.

However, where a disposition of property to a spouse, partner or dependent child is made pursuant to a Court order under section 25 of the Property (Relationships) Act 1976, s. 75A (6) does not apply as s. 75A (5) provides that such a disposition pursuant to a Court order is not a gift.