Gifting or leaving money to family members is a natural part of ensuring your loved ones are provided for, but what about gift tax?

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Chapters:
0:40 What counts as a gift?
2:05 How much can you gift?
3:47 The taxes to consider, including inheritance tax.
5:20 Special rules to take into account.



In the UK, as of the date of this video, everyone is entitled to a £3,000 annual tax exemption when making tax gifts to family members. This includes children and grandchildren. It's important to note that this is £3,000 in total and not per gift. So for example if you're a grandparent with 3 grandchildren you could gift them each £1,000 without paying any tax, not £3,000 each.

The annual exemption can be carried forward one tax year so any unused amount from the previous year can also be utilised. This can result in a maximum exemption of £6,000 in a tax year for an individual.

On top of the annual exemption an individual can also give away the following gifts each tax year:

• Wedding or civil ceremony gifts of up to £1,000 per person or £2,500 for a grandchild or great grandchild and £5,000 for a child
• Normal gifts out of your post tax income, for example Christmas or birthday presents but you must be able to maintain your standard of living after making the gift, something we’ll look closer at in the special rules section of this video.
• Payments to help with another persons living costs such as an elderly relative or child under 18
• Gifts to charities or political parties

And finally, providing the person you are giving the gift to has not been the recipient of one of the exemptions above then you can also give as many small gifts up to the value of £250 as you like.

Inheritance tax is the main tax to consider when gifting money. We go into a lot more detail about this in the video, however, the basics of inheritance tax is that if your estate is worth over £325,000. Remember, inheritance tax would not be charged on that £325,000, but anything over this amount. It's also worth noting that, as of the date of this video, this £325,000 threshold is increased to £500,000 if you are leaving property to children or grand-children and your estate is worth less than £2M in total.

When you give away a gift in excess of the gift allowance detailed above (£3,000 per tax year) the gift is usually considered a potentially exempt transfer or PET for short. This is because the gift may still be exempt from inheritance tax depending on when the donor, the person who gifted the assets, dies. If the donor of the gift lives a further 7 years following the date of the gift then the gift becomes exempt and no inheritance tax is payable but if the donor dies within that 7 year period then something called taper relief is applied.

We hope this video has given you more of an understanding about the way gifts and inheritance is taxed in the UK and taken you closer to knowing your numbers.

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Our videos are for general guidance, education and empowerment in helping you understand accounting, tax and your numbers. They in no way constitute specific advice to your specific circumstances. Me & my team would be delighted to help you with your specific queries or accounting requirements through a formal engagement.


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