Deed of gift: when you need one and how to execute it

A deed of gift is a written record that you have given something away outright, for nothing in return. It has to be a deed rather than an ordinary agreement for one reason: a promise made without consideration is not an enforceable contract, and a deed is the exception English law makes to that rule. Get the execution formalities wrong and you are left with an unenforceable promise on headed paper.

What makes it a deed

Section 1 of the Law of Property (Miscellaneous Provisions) Act 1989 sets four requirements, all of which must hold:

1. The document makes clear on its face that it is a deed — the words "executed as a deed" and "signed as a deed" do this.
2. It is signed by the donor.
3. The signature is witnessed and attested by someone who is present when the donor signs, and who then signs and adds their name and address.
4. It is delivered — that is, the donor makes clear they intend to be bound. Dating and handing over the deed does this.

The witness must be an independent adult. A spouse, civil partner, or the person receiving the gift should not act as witness: a deed witnessed by the donee invites the argument that the attestation is worthless. Signing must be physical presence — witnessing over a video call does not satisfy section 1 for deeds executed by individuals.

What a deed of gift cannot do

It cannot give away land or buildings. Transferring property registered at HM Land Registry needs a TR1 transfer, registered at the Land Registry — a deed of gift will not move the title, and gifting a home usually raises mortgage, tax and care-fee questions that need a solicitor.

It also cannot be used where you are not the sole owner. If the item is jointly owned, either every owner joins in as donor, or the deed is limited to your own share and drafted differently.

And it cannot be signed by an attorney under a lasting power of attorney for anything beyond the narrow permission in section 12 of the Mental Capacity Act 2005 — customary gifts on customary occasions, of reasonable value given the estate. Anything larger requires an order of the Court of Protection.

The seven-year rule, stated properly

Most lifetime gifts to individuals are potentially exempt transfers. If the donor survives seven years from the date of the gift, it falls out of the estate for inheritance tax entirely. Die within seven years and the gift counts against the nil-rate band; where tax is due and the gift was made more than three years before death, taper relief reduces the tax — not the value of the gift.

This is exactly why the deed matters: the date is what the seven years run from, and an undated or backdated document is worse than none. Never backdate a deed.

Separate exemptions run alongside: the annual exemption of £3,000 (carry forward one unused year), small gifts of up to £250 per person, gifts in consideration of marriage, and normal expenditure out of income. Gifts between spouses and civil partners are exempt under section 18 of the Inheritance Tax Act 1984 — the seven-year rule does not apply to them.

The reservation of benefit trap

If you give something away but keep using it, the gift with reservation rules (section 102, Finance Act 1986) treat it as still yours for inheritance tax — no matter how correctly the deed was executed. Giving your daughter the family painting while it stays on your wall is the textbook example. Where the reservation rules do not bite, the pre-owned assets income tax charge (Schedule 15, Finance Act 2004) may instead.

The fix is real: the donee has to actually take the thing, or pay a full market rent for its use.

Capital gains tax and solvency

A gift is a disposal at market value for capital gains tax, so gifting shares or a valuable chattel can create a chargeable gain even though no money changes hands. Between spouses or civil partners living together the transfer is on a no-gain/no-loss basis instead.

Include a solvency declaration. Gifts made when the donor cannot pay their debts can be unwound as transactions at an undervalue (section 339 Insolvency Act 1986), and the declaration is the contemporaneous evidence that the donor was solvent at the time.

Shares need a second step

For shares in a private company, the deed records the gift, but the transfer completes on a stock transfer form — J30 for fully paid shares, J10 for partly paid — with the company registering the transfer and issuing a new certificate. The company's articles may also give directors a discretion to refuse a transfer, so check them first.

→ Deed of gift — guided deed for money, possessions or private company shares, with the attestation clause, solvency declaration and donee acceptance. PDF and Word, one-time payment. See also the guide.

Related: will template UK: what makes a will valid · loan agreement template UK, when the money is a loan rather than a gift.