Financial gifts explained

It is now December and the season of giving is well and truly upon us. Many people will plan to make cash gifts over the festive period, but they may be unsure of how straightforward the process is or how to go about doing so. Others may be worried about their generosity causing an unexpected tax bill further down the line. With this in mind, this article covers the rules surrounding the potential tax treatment of gifts.

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Written by Nick Reeves

Published on 05 Dec 20141 minute read

Do I need to pay tax on cash gifts?

When you make a cash gift neither you nor the recipient has to pay any tax upon receiving the money. However, if you gift assets (such as investments) then you could be liable to Capital Gains Tax or Income Tax. There are other rules and exceptions which could apply when giving to your own children, more details of which can be found in our guide to Making Financial Gifts. But if you are unsure about your own circumstances, you should contact a qualified financial planner who can give you more information.

Inheritance Tax liability when making financial gifts

If someone dies within seven years of making a substantial cash gift it will form part of their estate, and could be subject to Inheritance Tax if the overall value of the estate surpasses the “nil rate band threshold” (currently £325,000 per person for 2014/15). This tax liability could be taken from your estate or paid by the recipient of the gift. Anything to pay may be subject to taper relief (if the gift is in excess of the “nil rate band”) and could be reduced depending on how long ago the gift was made.

Fully tax-exempt gifts

There are certain situations where a gift will be completely free from Inheritance Tax. For example, if you have not exceeded your £3,000 Annual Exemption – the annual allowance for financial gifts set by HMRC. You will also pay no tax when making financial gifts to your husband, wife or civil partner (if they live in the UK), as well as to certain charities and national institutions. The full details of these exemptions can be found in our guide to Making Financial Gifts.

If you would like to make a financial gift but are unsure about whether or not you will need to pay tax, or to discuss your wider financial and lifestyle goals, why not get in touch with our nationwide team of financial planners? Contact us on 020 7189 2400 or by emailing contact@tilney.co.uk.