Archived article: This article was correct at the time of publishing. Tax, investments and pension rules can change over time so the information below may not be current.

Making financial gifts

Many people would like to make cash gifts, but they may be put off because they are unsure of how straightforward the process is or how to go about doing so. Others are worried about their generosity causing an unexpected tax bill for their friends or family members further down the line. With this in mind, this article covers the rules and regulations surrounding the potential tax treatment of gifts.

Nick Reeves Nick Reeves
13 March 2015

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 free 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

Download your free guide to find out more

Here we have given you a roundup of the rules surrounding making financial gifts, but this is a complicated area with many different conditions and exceptions. If you’d like more information, including full details of tax-exempt gifts and HMRC’s “seven year rule”, please download our free 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 info@tilneybestinvest.co.uk.

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Tax

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This article is not a personal recommendation or advice to invest. Prevailing tax rates and the availability of tax reliefs are dependent on your individual circumstances and are subject to change. Please note we do not provide tax advice.