Want to give someone a financial gift? Be aware that gifting money or assets (such as jewellery, property or shares) has tax implications depending on the situation. At Narrative Wealth, we’ll talk you through the details so you can give your recipient what you want.
What are tax-free allowances?
UK Government allowances permit you to give a gift without triggering Inheritance Tax (IHT). If your gift is within the allowances listed below, you don’t have to worry about tax.
- Annual exemption.;You can give away up £3,000 per year without having to pay tax. A big plus point: if you don’t use your allowance in one tax year, you can roll it over to the next (so you have £6,000 exemption).
- Weddings or civil partnerships. If you’re a parent, you can give up to £5,000 tax-free for your child’s wedding or civil partnership. Grandparents and great grandparents can give up to £2,500 tax-free. Other people can give up to £1,000 tax-free. This allowance can be combined with the annual exemption.
- Small gift allowance. You can give small gifts of up to £250 in a tax year as long as you haven’t used a different gift allowance on the same person.
- Christmas and birthday. If you give cash out of your regular income for these events, it is exempt from inheritance tax.
- Normal expenditure out of income. You are permitted to give cash on a regular basis as long as the money comes from regular income and your standard of living doesn’t change.
How much can you gift your children?
Technically, you’re free to give your children as much as you want, but there’s a hitch: the seven-year rule. This becomes relevant when you give an amount that’s above the allowances. If you die within seven years of having given the gift, it may become part of your estate and subject to inheritance tax. If you live for more than seven years after giving the gift, it becomes completely exempt of IHT, no matter how large the gift was.
Do I need to declare cash gifts to HMRC UK?
In most cases, no. However, if you make a profit on a gift you receive, such as selling a property for profit, you may have to pay Capital Gains Tax.
Common myths about gifting
Gift tax can be complicated. Don’t fall for the following misconceptions:
- Cash-only gifts are tax-free
- You don’t need to keep records of gifts
- You can give unlimited money to your children tax-free. While you can give any amount, only the amount within your exemptions is immediately tax-free — the rest may become subject to IHT under the seven-year rule.
Contact Narrative Wealth
If you want to know more about how much money you can gift then we can give clear advice on gifting, tax planning, and long-term wealth strategy.
We are based in Wimbledon Village in London and offer friendly advice to local and national customers.
If you have any questions, please don’t hesitate to get in contact.