Gifting money

[saleen836]

Is there a limit on how much a parent or relative can gift to a child/adult member of the family before tax implications?
Tried the search on here and google but couldn't find a definitive answer.

[Eric Mc]

No.

But if you die within 7 years of making the gift the value of the gifts given within that 7 year period will be added back to your estate for Inheritance Tax purposes.

[condor]

I thought the first £3000 a year to each family member was discounted from the 7 year inheritance tax rule. I even thought there was talk of increasing it to £5000.

[ShadownINja]

Yes, I thought it was £3k, too. Well, giving, not gifting.

[Eric Mc]

condor said:

I thought the first £3000 a year to each family member was discounted from the 7 year inheritance tax rule. I even thought there was talk of increasing it to £5000.

Correct. There is an annual IHT Exempt amount of £3,000. If a £3,000 amount wasn't gifted in the previous year, then the annual alllowance can be increased by that unused ealier year amount making the total IHT free gift £6,000.
There is also an extra allowance when a gift is made "in anticipation of marriage".
These remain outside IHT even if the gifter dies within 7 years.

These limits have been around for ages (well over ten years) and are very much out of date.

However, if you don't die within the dresed 7 year period, there are no upper limits to gifting.

Edited by Eric Mc on Thursday 31st December 10:20

[saleen836]

Thanks all.

[Jespin]

There are also unlimited gifts of £250 that can be made providing no one individual receives more than one gift in a tax year. Be aware that the £3,000 annual exemption limit is an annual total, not £3,000 to each individual you gift something to. The above posts didn't seem to make that clear.

You can also make unlimited gifts from excess income so if you have an amount left over each month after living expenses, you can gift this away too. There are certain caveats to this though.

[Eric Mc]

I didn't want to get too involved in explaining things. Sometimes too much explanation can cause confusion. I was sure some one would chip in later anyway

[condor]

Jespin said:

There are also unlimited gifts of £250 that can be made providing no one individual receives more than one gift in a tax year. Be aware that the £3,000 annual exemption limit is an annual total, not £3,000 to each individual you gift something to. The above posts didn't seem to make that clear.

You can also make unlimited gifts from excess income so if you have an amount left over each month after living expenses, you can gift this away too. There are certain caveats to this though.

I didn't know that the £3K allowance was an annual total...don't think my parents do either we thought it was an individual sum that's why I implied it in my post.

[Wings]

condor said:

Jespin said:

There are also unlimited gifts of £250 that can be made providing no one individual receives more than one gift in a tax year. Be aware that the £3,000 annual exemption limit is an annual total, not £3,000 to each individual you gift something to. The above posts didn't seem to make that clear.

You can also make unlimited gifts from excess income so if you have an amount left over each month after living expenses, you can gift this away too. There are certain caveats to this though.

I didn't know that the £3K allowance was an annual total...don't think my parents do either we thought it was an individual sum that's why I implied it in my post.

Each parent may make the annual £3k allowance, so a married couple may gift a annual total gift of £6k. In addition one may also gift surplus earned taxable income, free of IHT, being calculated/back dated for the previous 4 years, and for future years, but these future payments must be on a regular basis to be free of IHT.

Edited by Wings on Friday 1st January 21:06

[TooLateForAName]

Remember that to escape IHT the gifts must be unreserved - ie real, no clawbacks/reservations.


Remember that childrens investment income can be taxed on the parents.

[flemke]

Eric Mc said:

No.

But if you die within 7 years of making the gift the value of the gifts given within that 7 year period will be added back to your estate for Inheritance Tax purposes.

I believe that the 7-years exclusion is proportionately operative after the 3rd anniversary of the gift.

That is, if the donor dies within 3 years of the gift, its value goes back into the estate. If the donor dies 3 yrs + 1 day after, then the tax rate on the gift is reduced by one-fifth. If donor dies 4 yesrs + 1 day, tax rate is reduced by two-fifths, etc.

[Jespin]

Yes taper relief does apply from 3rd year onwards IF there is tax due on the PET, however the full value of the gift is drawn back into the deceased's estate for calculation of the remaining nil-rate band. This will reduce the tax that the recipient of the gift will have to pay in the event that they have a tax liability. However, usually it just results in a greater proportion of the assets within the estate being chargeable at 40%.

[Eric Mc]

Jespin said:

Yes taper relief does apply from 3rd year onwards IF there is tax due on the PET, however the full value of the gift is drawn back into the deceased's estate for calculation of the remaining nil-rate band. This will reduce the tax that the recipient of the gift will have to pay in the event that they have a tax liability. However, usually it just results in a greater proportion of the assets within the estate being chargeable at 40%.

That was my understanding too.

[Tiggsy]

Which means (in most cases) the gift has to be greater than the nil band for taper to be relevant.

With a couple now having over £600k of nil band IHT is not much of an issue for many people and tax on gifts is even less of an issue.

[Eric Mc]

I think you mean "married couple" (or a couple in a Civil Partnership).

[condor]

Tiggsy said:

Which means (in most cases) the gift has to be greater than the nil band for taper to be relevant.

With a couple now having over £600k of nil band IHT is not much of an issue for many people and tax on gifts is even less of an issue.

There are situations when a parent's single brother/sister dies intestate and their estate is divided up between the remaining siblings. The parent decides to give their portion of the estate to their offspring, thereby the gift would likely be more than the alloweable £3K a year.

[Tiggsy]

condor said:

Tiggsy said:

Which means (in most cases) the gift has to be greater than the nil band for taper to be relevant.

With a couple now having over £600k of nil band IHT is not much of an issue for many people and tax on gifts is even less of an issue.

There are situations when a parent's single brother/sister dies intestate and their estate is divided up between the remaining siblings. The parent decides to give their portion of the estate to their offspring, thereby the gift would likely be more than the alloweable £3K a year.

If they were doing that they should alter the will via a deed of variation and have no gift issues to worry about.

Yes Eric...married couples - none of this living sin nonsense but the gays are ok...whats the world coming to

[Eric Mc]

Aye - the wages of sinful living could be a nice big IHT bill.

[whittroy]

Could you please explain what PET is. This will help me in my understanding of some of the gifting laws.

Also if the person who the gift is given to is a UK tax payer is this gift then subjected to that person's income tax responsibilities ?

If it is and then it is subsequently drawn back into the original estate on death, can it be taxed again ?

Thanks.