The summer may nearly be over – but wedding season isn’t! Recent research shows that September is the second most popular month to get married in; meaning that you might be perusing a gift list or two in weeks to come. But if you’re considering giving a cash present, how much can you give away without incurring tax?
The good news is that you may be able to make a cash gift without incurring any tax – but it depends how much you give, who you give it to, and when you give it. In this blog we cover some essential information to do with gifting money; however, if you’re considering giving cash as part of a long-term inheritance strategy, do consult an IBISS & Co tax adviser to ensure that your estate planning is as effective as possible.
How Can I Gift Money Without Incurring Tax?
It is possible to give money without being taxed. Generally, one of the following conditions will need to be met:
- The amount is less than the annual gift allowance (currently £3,000 per annum). Note that wedding cash gifts have their own particular allowances, which we will cover in more detail later on.
- The gift is given seven years (or more) before the benefactor dies.
- The gift is given to an exempt beneficiary – a spouse or civil partner (provided they’re a UK resident), a registered charity, or another eligible organisation (e.g. the National Trust).
- Other beneficiaries may be exempt from tax, too (for example, the recipient of a wedding gift), but this depends on the amount given and the nature of the gift (see the ‘What Qualifies as a Gift’ section).
Gifts can be given in the form of cash or by transferring an asset (such as a property).
What About Inheritance Tax?
Inheritance tax – or IHT – is the tax due on a person’s estate upon their death. An ‘estate’ includes cash, investments and property; and if the value exceeds £325,000, it’s likely that tax will be payable on the amount above this threshold (at a rate of 40 , which is reduced to 36 if 10 – or more – of the estate has been donated to charity).
IHT is not only due on those items still within a deceased person’s possession when they die – they can also apply to gifts. Generally speaking, gifts given more than seven years before you die are exempt from IHT charges. Gifts given between three and seven years before your death are subject to charges at but taper relief applies (which means that inheritance tax is charged at a reduced rate). For more detailed information concerning inheritance tax, please visit our helpful guides: ‘Inheritance Tax: An Introduction’ and ‘Inheritance Tax for Married Couples and Civil Partners’
What Qualifies as a Gift?
Each year, you can give away a total of £3,000 to non-exempt beneficiaries. Moreover, this allowance can be carried forward one year if it’s not used; meaning that it’s possible to amass an allowance of up to £6,000.
In addition to general gifts, you can give the following without tax being due:
Small cash gifts. During each tax year you’re entitled to give small gifts of up to £250 to as many recipients as you like. The exceptions ot this rule are if the gift is to someone who has already benefited from your annual £3,000 allowance. Moreover, the £250 limit can’t be used to receive a partial tax deduction – if you gave a gift of £500 to a non-exempt beneficiary, for instance, tax would be payable on the whole amount (not just the part above the first £250).
Wedding gifts. You may be able to gift cash to a newly-married individual without tax being due, depending on the person’s relationship to you. If the recipient is your child, you can give up to £5,000 tax-free; if they’re your grandchild, you can give up to £2,500. For anyone else, you’re able to gift cash of £1,000 or less without being taxed.
Regular gifts. Several payments fall into this category – from maintenance to an ex-partner to Christmas presents. The only condition is that these are frequent payments that are taken from your taxed income (rather than savings).
Do you wish to bestow a cash gift on a loved one but feel concerned about the implications? Contact IBISS & Co today to discuss your prospects. Experts in all forms of taxation – from inheritance tax to estate planning – our skilled team will provide a comprehensive review of your options and help you find the best solution without unnecessary stress or expense.