When it comes to gifting money to family members in the UK, it’s important to understand the legal guidelines, particularly concerning tax implications. While giving gifts is generally allowed, there are specific rules and thresholds to consider, especially regarding Inheritance Tax (IHT) and whether the gift exceeds certain limits. Here’s a breakdown of the key factors:
1. Annual Gift Exemption
In the UK, you can give gifts up to £3,000 per tax year without incurring any Inheritance Tax liability. This is called the annual exemption. If you don’t use the full £3,000 in one tax year, you can carry over any unused portion to the next year, but only for one additional year. This means you could potentially give £6,000 in one year if you didn’t use your exemption in the previous year.
2. Small Gift Exemption
You can give as many gifts as you like, as long as each gift does not exceed £250 per recipient, and the total number of gifts does not exceed £3,000 for the year. These gifts are exempt from tax, meaning you don’t need to worry about reporting them. However, the £250 exemption does not apply if you’ve already used your £3,000 annual exemption on a particular recipient.
3. Wedding or Civil Partnership Gifts
There’s a special allowance for gifts made to a family member for a wedding or civil partnership. You can give:
- £5,000 to a child,
- £2,500 to a grandchild or great-grandchild,
- £1,000 to any other person.
These gifts are exempt from Inheritance Tax, provided they are made for the wedding or civil partnership, and certain conditions are met.
4. Gifts Out of Income
Gifts made from your surplus income (income that’s left over after paying for living expenses) can also be exempt from Inheritance Tax. To qualify, the gift must be part of your normal expenditure and made regularly. For example, you can give money to a family member monthly, but you’ll need to prove that the money isn’t coming from your capital and that it doesn’t affect your standard of living.
5. Potentially Exempt Transfers (PETs)
If you gift more than the exemptions mentioned above, the gift could still be exempt from Inheritance Tax if you survive for 7 years after making the gift. This is known as a Potentially Exempt Transfer (PET). If you pass away within 7 years, the gift may be subject to Inheritance Tax, but the rate reduces over time. The longer you live after making the gift, the less tax your family member will pay.
6. Gifts Between Spouses and Civil Partners
Gifts between spouses or civil partners are exempt from Inheritance Tax, regardless of the amount, as long as the recipient is domiciled in the UK. This means that you can give any amount of money to your spouse or civil partner without any tax implications.
7. Inheritance Tax (IHT) and Gifting
If your gift exceeds the annual exemption or if it’s made within 7 years of your death, it could be subject to Inheritance Tax (IHT). This tax is typically levied at a rate of 40% on the value of the gift above the exemptions.
Conclusion
In the UK, you can give a significant amount of money to a family member as a gift, but understanding the exemptions and tax implications is key. You can gift up to £3,000 each year without worrying about taxes, and there are other allowances for specific situations, like weddings. However, larger gifts may have Inheritance Tax implications, especially if they’re given within 7 years of your death. Always consider seeking professional financial advice to ensure you’re gifting in the most tax-efficient way possible.
