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Guide To Asset Gifting

Contributor:
Sorted.org.nz
Sorted.org.nz

Gifting

Most people who form trusts gift away the debt that the trust owes them.

In New Zealand, you can gift up to $27,000 in a 12 month period
before you have to pay any gift duty.
A couple can therefore gift
$54,000 a year without paying gift duty.

This means that a couple who sold their house to their family trust
for $200,000 would be owed $200,000, and they could gift that to the
trust by way of forgiveness of debt at a total of $54,000 each year.
That will take them three years if they want to avoid Gift Duty. (The
first gift is made when the trust is formed – year zero – and then a
gift is made on the next three anniversaries of the trust’s formation.)

Asset transfer

Once the trust is formed assets can be sold into the trust. It’s
important that they are sold to the trust at market value - if they
were sold under value or gifted you might have to pay Gift Duty on the
transfer. However, although the trust wants to buy, say, your house
(and you want to sell it to the trust) the trust has no money to buy
it. How then does the trust pay for the house?

The answer to this is that you lend the trust the money – a sort of
vendor finance. Initially this is a paper transaction - you sell the
house to the trust, and the trust now owes you a house-sized debt.

This has still not really got you further towards your aim of owning
less or nothing at all because the debt that the trust owes you is your
own personal asset (although any increases in the value of the house
after the transfer will “belong” to the trust). How then do you get rid
of that debt so that you own less? The answer is gifting.

Gift duty

If, in any 12-month period (not just a calendar or financial year),
you give away more than $27,000 to anyone, you must pay gift duty on
the excess. It’s the total value of all gifts that counts, not the
amount of a single gift. The rates of gift duty are:

Value of all gifts
Gift duty payable

To $27,000
Nil

$27,000-$36,000
5% of excess over $27,000

$36,001-$54,000
$450 + 10% of excess over $36,000

$54,001-$72,000
$2,250 + 20% of excess over $54,000

Over $72,000
$5,850 + 25% of excess over $72,000

 

The Inland Revenue Department
requires you to file a “gift statement” for any gifts where the total
made in a year exceeds $12,000. So you need good records to make sure
you comply with all the formalities.

See also:

- How to create a trust

- Guide to the costs and risks of creating a trust

 

Content provided by sorted.org.nz, Your Independent Money Guide.

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