Across the UK, giving gifts to friends, family members, or your kids is quite common. After all, a sizeable gift could change a person’s life. Whether that gift involves the money for a down payment on a home or a home itself, gifting is a great way to help others. Unfortunately, though, some gifts are subject to various taxes like inheritance taxes and the 7-year-rule. Knowing what you can give tax-free, which gifts are exempt, and which ones might create problems for the recipient is key before you give anyone a gift this year.
How Much Money can you Gift Tax-Free?
Just exactly how much money can you gift before taxes become a problem? If you’re one of the thousands of people is asking themselves “How much can I gift tax-free?” you’re not alone. Understanding what that threshold looks like can be complex. That’s because those numbers are continually changing. So, the answer to the question “How much money can you gift in the UK in 2021?” is a bit different than the answer today. Generally, in the UK, one is allowed to give a tax-free gift of a cash value of up to £3,000. This annual exemption if not used in one year can be rolled over to the following year, but you are only allowed to take advantage of the rollover one time. For example, imagine in 2020, your father gave you a gift worth £2,000. The following year, in 2021, he gave another £2,000 to your brother. He didn’t meet his annual exemption in either year. As a result, he can roll over the extra £2,000 the following year, but he can only do that one time.
Small Gift Allowance
Not all gifts are treated equally, though. In the UK, one is also permitted to give many small gifts. However, the total value of these small gifts cannot be more than £250 per individual each tax year. These could be party gifts, holiday gifts, or something similar, and you can offer the same gift to the person year after year.
Wedding and Civil Partnership Gifts
As with small gifts, those given in celebration of a wedding or a civil partnership don’t face the same status other gifts do. Every year, you are allowed to give a tax-free gift to someone who is starting a civil partnership or getting married. HMRC allows you to gift up to:
- £5,000 to a child
- £1,000 to any other individual
- £2,500 to a grandchild
Which gifts are taxable in the UK?
With so many different exemptions, you may be a bit confused about what can be taxed and what cannot. Ultimately, the tax status of a gift depends on who receives it and its market value. For example, you can give your civil partner or spouse as many gifts as you like each year and for the most part, these personal gifts are tax-exempt. Whether those gifts are cash or even property doesn’t matter. If they’re made to your spouse or partner, they’re likely not taxable.
Other tax-exempt gift beneficiaries include:
- Schools
- Museums
- Hospitals
- Charities
- National organisations
- Volunteer agencies
Any gift amount to these entities will always be considered tax-free. That status does not ring true for everyone, though. For example, when gifting money to friends, UK taxpayers have found they are subject to the annual £3,000 threshold. The same is true if you’re giving money to your children, grandchildren, or other family members.
There are, though, a few special circ*mstances when gifting money to family in the UK. Times are difficult, and many people are having a hard time making ends meet. If you help out another individual or family with regular payments to help cover the cost of living or their heating bills, this is tax-free as long as those gifts don’t affect your lifestyle, and you give them the money from your regular monthly income. The money can go into a savings account, offer financial support to someone who is considered disabled or elderly, or pay monthly rent.
The Inheritance Tax 7-Year-Rule
When it comes to inheritance tax, gifts get complicated. Maybe the person who gave you a gift initially set out to ensure you were given a tax-free gift within the required limitations. The 7-year-rule, though is fairly complicated, and it causes many to pay taxes where they initially didn’t expect to do so. If the gift fits under the person’s yearly threshold, no tax will ever be due. If, however, a person gave you a much larger gift, you may have to pay an inheritance tax on it if they die within 7 years of giving it to you. For example, imagine you received a large gift from your father of £100,000 to help you buy a home. If your father died a year after he gave you that gift, it would be subject to inheritance tax.
Still, a bit confused on how gifts, taxation, and the 7-year-rule work in practice? These FAQs can help you sort through your biggest questions.
How much can I give tax-free?
At any point in time, you can give £3,000 per year without you or the recipient having to worry about taxes. If you choose to give more than that, you may be liable for taxes as may the person who received the gift. What’s more, though, is that if you give a larger gift, but you die within seven years, whether or not it is taxed will depend on how large the gift was and your relationship with the person who received the gift.
Can I gift money to my children?
There is no limit on how much you can gift your children, but if you want the gift to be tax-free, it has to be under the £3,000 annual exemption. As long as you know the tax implications when you give over £3,000 in one year, you can give as many gifts as you want. You are at liberty to give money or gifts up to a cash value of £3,000 to just one child or split the £3,000 among several children.
In the event you do make a larger gift, you may be wondering how much a parent can gift a child. UK experts suggest becoming familiar with inheritance tax rules if you’re concerned. If you do not live at least 7 years after you’ve given your child that gift, it will be included in the value of your estate and become subject to inheritance taxes.
What Are Inheritance Tax Gifting Rules?
Some gifts are exempt from the inheritance tax. For example, there is no inheritance tax on gifts that married or civil partners exchange between themselves. The couple is at liberty to give as many gifts as they want during their lifetime, provided they:
- Are legally married
- Are you in a civil partnership
- Reside permanently in the UK
Further, there is no inheritance tax on any gift that you give to a political party or your favourite charity. Inheritance tax does apply on other gifts outside of your yearly exemption, though, and it does apply to any gifts you give within seven years of your death.
Can I Leave a Gift in my Will?
Many people create a will and leave personal possessions or gifts for their loved ones. But these items are considered part of your estate, which includes everything you own. When you die, the total value of your estate is calculated, and there are inheritance taxes to be paid.
Can I Give My Children Money Tax-Free In My Will?
All property and money left in your will to anyone except your spouse or civil partner are subject to inheritance taxes. The only way around that fact is to work with a solicitor to create a trust or another non-taxable entity to help protect part of your estate.
Do I Pay Tax on Gift Money from Parents?
Wondering about the answer to “Do I pay tax on gift money from parents in the UK?” Many people who live abroad do wonder about it. It all depends on the amount. Everyone in the UK is allowed to gift £3,000 (tax-free) each tax year to their child. As long as the gift is under the annual exemption, there is no tax.
How Much Money Can I Give Away Each Year?
In the UK, citizens are allowed to give a £3,000 ‘gift allowance’ every year. Known as the annual exemption, you do not pay tax as long as the total value is less than £3,000 in a tax year.
Can I Gift My House To My Children?
Yes. The most common method of transferring property to children in the UK is through gifting. This way you avoid the inheritance tax when you die. The inheritance tax starts at a steep 40% and applies to any property over £325,000.
How Much Is the Gift Tax UK Citizens Pay?
This depends on the value of the gift and when the gift donor dies. If the gift donor is alive and 7 years have passed since the gift, there is no tax. If the gift donor dies before 7 years have passed then the taper rule comes into effect. If the person died 3-4 years between the gift and death, the tax rate is 32% and it is 0% if he is not dead after 7 years.
How Much Money Can You Receive as a Gift in the UK?
You can get up to £12,570 as a gift without paying any additional taxes on it. If you get more than that, you may need to consult with a solicitor to understand how to pay the taxes on that amount.
