Gifting Money to Family Members

Gifting money to family members can be a thoughtful way to show your support and care. However, it’s important to be aware of the guidelines and potential pitfalls involved with gifting money. Whether it’s for a special occasion, a financial emergency, or simply just a gift, knowing the dos and don’ts can help you gift money smoothly.

This article provides information on how to legally gift money to a family member in the UK, including:

– Common Scenarios for Gifting Money

– How much money can you gift tax free?

– Annual exemption for gifting money

– How much money can you gift?

– Are there any gifts that are excluded from tax?

– Practical Steps to Legally Gift Money

Common scenarios for gifting money

Special Occasions – Special occasions like weddings, graduations, or milestone birthdays are common times to gift money. These gifts are often seen as a way to contribute to the recipient’s future or celebrate their achievements.

Financial Emergencies – In times of financial emergency, gifting money can provide much-needed relief. Whether it’s for medical bills, unexpected repairs, or job loss, a financial gift can help a family member get back on their feet.

Education and Investments – Gifting money for education or investments can have long-term benefits. Contributions to a child’s University education or providing seed money for a family member’s business venture or purchasing property can be incredibly impactful. These types of gifts are often seen as investments in the recipient’s future.

How much money can you gift tax free?

The amount of money you can gift tax-free in the UK depends on the annual exemption limit. This limit sets the maximum value of gifts that can be made without incurring any tax each tax year. However, it’s important to note that the annual exemption limit is subject to individual circumstances, tax year, and tax rules.

To effectively plan your taxes, it is crucial to have a proper understanding of the annual exemption limit and how it may change in the next year.

Here is a brief look at different ways you may like to consider when gifting:

Small Gifts – You can give small gifts worth up to £250 to anybody each tax year – this could be an ideal way to cover gifts for Christmas or Birthdays

Annual Exemption – Everyone has an annual gift allowance of £3000 so this might cover some larger gifts which are more than £250 but less than £3,000. If you did not use the full £3,000 last year, you are able to carry it forward to the current tax year meaning you could potentially gift a maximum of £6,000.

Gifts out of income – Gifts made of your surplus income may be exempt from inheritance tax (IHT). There must be a regular pattern of gifting, so this exemption could be appropriate to cover gifts that you make each year. Such gifts must not change your normal standard of living.

Gifts between spouses or civil partners – Your spouse or civil partner may be the main recipient of your gifting and such gifts of any amount are also free from IHT. There are different rules for non-married partners.

Gifts in anticipation of a Wedding or Civil Partnerships – Regardless of what time of year the Wedding or Civil Partnership is, parents of the bride, groom or partners can give £5,000 free from tax. Grandparents or other relatives can give £2,500. Anyone else can give up to £1,000 free from IHT.

Gifts to charities and political parties – If you decide that you would prefer to donate to a charity or a political party – such gifts are generally free from IHT – so long as it is a UK registered charity or political party.

Potentially Exempt Transfers (PETs) – If your gifts do not fall into any of the above categories, you can still make other substantial gifts – so long as you survive 7 years after making such gift and you retain no benefit from them.

Annual exemption for gifting money

The annual exemption limit allows individuals to gift money tax-free each tax year, up to a certain amount. Staying updated on the current rules is essential, as the annual exemption limit is subject to change.

How much money can you gift?

How much you choose to give in cash gifts to your children is entirely up to you. However, if you want to guarantee that your gift is tax-free, it will need to be covered by your £3,000 annual exemption. Of course, that doesn’t mean you can’t give them more than this – you simply need to be mindful of the timing.

If you do intend to give a monetary gift to your children, you’ll need to keep a record of the nature of the gift, who you gave it to, when you gave it and how much it was worth.

Are there any gifts that are excluded from tax?

Yes, some gifts are exempt from inheritance tax. Some of the types of gifts that are excluded from tax in the UK include the following:

– ‘Everyday’ gifts that you take out of your income to give as Christmas or birthday presents, or, in some instances, when you gift money to your children.

– Small gifts worth £250 or less during each tax year.

– Wedding gifts, however, the amount will depend on your relationship with the recipient.

– Payments to support with living costs.

– Charitable donations.

Practical steps to legally gift money

– To ensure that your gift money transactions are legally compliant, it is important to document these transactions. This helps in maintaining a clear record of the gifts and proves helpful for tax purposes. By keeping records of monetary gifts to family members, you can easily demonstrate that these gifts were made within the legal framework.

– Understanding the types of gifts that are exempt from inheritance tax is crucial.

– Consult legal professional advice to ensure that the transfer of gift money is done in a legally sound manner.

Our Wills, Trusts & Probate team can assist in creating, reviewing and updating a Will, and can give advice on any financial or estate planning or estate law queries.

You can email Howells to make an appointment at [email protected] or call us on 0114 2743481.