What you need to know about gifting money in the UK
In the UK, gifting money to your loved ones is pretty easy, but it’s important to bear in mind that some gifts might be taxed by the government. On this page, you’ll learn everything you need to know about gift tax, including your gift allowance and gifting exclusions.
- Gift tax is a type of government tax paid by someone who gives away something worth over £3,000, such as money or property
- Gift tax prevents UK citizens from avoiding inheritance tax by giving away their money or possessions before they die
- Every UK citizen is entitled to an annual gift allowance of up to £3,000
- A gift you give someone more than seven years before you die is exempt from inheritance tax
Table of Contents
What is gift tax?
In the UK, gift tax is applied when you give something of value to someone. Gift tax is designed to prevent UK citizens from avoiding inheritance tax by giving away your money as gifts before you die.
What counts as a gift?
A gift can be anything you give that has value, such as money, possessions, and property. It can also be something that has decreased in value. For example, if you sell your house for less than its actual value to your child, the difference in value can count as a gift.
Are all gifts taxable?
Not all gifts are taxable, and there are certain types of gifts that are exempt from gift tax. However, this depends on who the gift goes to and how much money the gift is worth.
For example, you can give your spouse or civil partner as many gifts as you like during your lifetime and these will remain exempt from tax. You can also gift money and assets to your spouse or civil partner by leaving your estate to them. When a spouse or civil partner is the beneficiary of an estate, they are not subject to inheritance tax and are considered an ‘exempt beneficiary’.
Charities, trusts and national organisations can also be considered exempt beneficiaries, so any gift made to them will not be subject to tax.
There’s no limit on gifts made to exempt beneficiaries, but if you want to make a gift to someone who is not an exempt beneficiary, you have an annual tax-free allowance of up to £3,000 per person.
How much is the annual gift allowance?
You’re entitled to an annual tax-free gift allowance of £3,000. This is also known as your annual exemption. With your annual gift allowance, you can give away assets or money up to a total of £3,000 without them being added to the value of your estate. Once you’ve exceeded this allowance, the gifts you give may be subject to inheritance tax in the event of your death.
If you don’t use your full gift allowance in one year, you’re allowed to roll it over to the following year. You’re only allowed to do this once, so you couldn’t roll any allowance you haven’t used over for a second year.
Are there any gift tax exclusions?
Yes, some gifts are exempt from gift tax. Some of the types of gifts that are excluded from gift tax in the UK include the following:
- ‘Everyday’ gifts that you take out of your income to give as Christmas or birthday presents, or, in some instances, when you gift money to your children. In order to remain exempt, once you’ve given the gift, you must still be able to maintain your usual standard of living.
- You can give small gifts worth £250 or less during each tax year, but you’ll have to pay gift tax if you give a gift of this value to a person who you’ve already given your £3,000 annual gift allowance to.
- Wedding gifts, such as cash gifts, are exempt, although this depends on your relationship with the recipient. If you’re a parent, you can give a gift worth up to £5,000. If you’re a grandparent, it’s up to £2,500. If you’re friends or a member of the family, then you can only give gifts that are worth up to £1,000.
- Payments that are aimed at helping another person’s living costs can also be exempt from gift tax. The recipient of this type of gift might be an elderly relative or a child who’s under the age of 18.
- Gifts to political parties are exempt from tax as long as two or more members of the party were elected to the House of Commons, or only one member was elected and the party received at least 150,000 votes.
- Charitable donations and gifts to institutions such as art galleries, museums and heritage funds are also exempt from gift tax.
Does it matter when you give a gift?
Yes, the timing of your gift matters. A gift you give someone more than seven years before you die is exempt from inheritance tax.
Any gift that you give seven years or less before your death will be liable for inheritance tax, but this will be at a reduced rate depending on the number of years it is since you gave the gift. This is known as taper relief. This table shows how much tax you’ll need to pay based on the number of years between giving the gift and death:
|Years between your gift and death||Tax rate|
|Less than 3 years||40%|
|3 to 4 years||32%|
|4 to 5 years||24%|
|5 to 6 years||16%|
|6 to 7 years||8%|
|7 years or more||0%|
Taper gift tax relief doesn’t necessarily reduce the value of your gift, but it does reduce the amount of tax payable. It’s important to include this information when you file a self-assessment tax return with HMRC.
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