Do you have to pay tax on a Gift? Not every gift you give in your lifetime is going to be subject to inheritance tax.
Anything that has a value is counted as a gift for example money, possessions or property. Also any loss in value of something that is being transferred or gifted counts as a gift, for example selling your property to your children for less than it’s worth this could also in some cases increase the amount of capital gains tax. Therefore it is important to know what the tax implications are on the gift to protect your beneficiaries form unexpected inheritance tax bill after your death.
You have an ‘Annual exemption’ of £3000 this means you can give away up to £3000 worth of assets each tax year without it being counted as part of your estate upon your death. Any gifts of more than £3000 given within 7 years of death will be counted as part of the estate these are known as ‘Potentially exempt transfer’. If your estate, with the gifts included, is worth more than the inheritance tax allowance of £325,000 you will be eligible for inheritance tax.
Other than your Annual exemption, each tax year you can also give,
Gifts out of your normal income. For example birthday or Christmas presents. You can give gifts out of your surplus income as long as your standard of living isn’t reduced by giving it.
Small gifts of up to £250. You can give as many gifts of up to £250 to as many people as you want but not if you have already used another exemption on them. For example if they have already received a gift of £3000 from you which uses your annual exemption.
Wedding or civil ceremony Gift. The couple getting married can gift each other up to £2500. A parent can give their child up to £5000, a Grandparent can give up to £2500 and anyone else can give up to £1000 as an exempt gift.
Gifts to help maintain another person’s living cost. You can make payments to help with the living costs of an elderly relative or of a child under the age of 18 or in full time education.
Gifts to Charities, museums, universities or community amateur sports clubs are exempt from tax. Gifts to political parties are also exempt under certain conditions.
In some cases you can use more than one of these exemptions on the same person in the same tax year, for example you can give someone a wedding gift and a birthday gift in the same year.
If you are concerned about your tax liability when giving a gift it is advised to seek professional advice. If you are the executor of an estate where there are lot of gifts to take into account or inheritance tax to pay speak to a member of our team on 08007318722 or send an inquiry via our webpage.