When is a gift not a gift? When it comes with conditions

I think we’ve all probably been in situations where we have handed out money, either as a loan or a gift, and had good intentions for the recipient. Whether it’s help to buy a car, or purchase a first home, many people often tend to gift money to help out family and friends. But, what happens when the gift of money does not fulfil its intended purpose? Is it still a gift and therefore, the recipient is free to spend as they please? Or, is the donor entitled to it back?

I refer to a case that was printed in the Times recently, reporting a relationship breakdown between Ms Camilla Simonsen and her partner Stephen Collins. After a short-lived relationship, the couple separated following a number of tumultuous rows. As a way of restoring peace, Simonsen agreed to pay Collins a significant sum, £42,000, to cover a year’s rent at a property in Kingston Upon Thames at his request, on the basis that they “can both be kind towards each other” from then on.

Simonsen paid the money to the estate agent, but shortly afterwards, the relationship dissolved for good – and Collins never moved in. Simonsen then asked the estate agent for the money back but they refused. In court, she was awarded her money, but Collins appealed on the basis that he was entitled to it because it was a gift.

Who was right? On the face of it, Simonsen paid the money in good faith, however, Collins perceived it as a gift. The court ruled that, because the money did not intend to fulfil its purpose, it was returned to the donor. In this case, Simonsen had made it clear that the gift was intended for the use of a property rental, which, in the end, never happened. In fact, court papers have documented that the money transfer was referenced on the bank statement as “Camilla Simonsen Rental”, making it pretty clear cut and this is why the money was returned.

There are some lessons to be learned from this. As I’m sure many parents amongst us will verify, giving large sums of money to a child to help them set up home feels like a rite of passage. Any gifts are tax-free as long as the donor lives for seven years after giving that gift – so that is one thing to bear in mind.

The law states that in order for money to be a “gift” it must be transferred voluntarily. If the gift is given on a condition, perhaps to buy a property, and that wish isn’t fulfilled, the donor can ask for it back. Similarly, if a parent is gifting a house deposit to a couple, they might want to think about what happens if the couple separate. Usually, a property is held as a joint tenancy, meaning the house is divided 50/50, whether the couple is married or not and regardless of whether or not one person within the couple has contributed more than the other. Where unequal shares in property occur, it could be more sensible to opt for a different legal document where owners are “tenants in common” as opposed to joint owners.

Every situation is different and dependent on individual circumstances. If you would like some further information about property ownership, or you think you might have a right to the return of gifted money, contact the private client team at Downs Solicitors to see how we can help.