How to gift money without being taxed
Many of us, in our lifetime, may want to give our family or friends some money. Perhaps you want to help a child purchase a new home, invest in a new business venture or simply treat them and show them that you care. Whatever the reasons are, they are undoubtedly incredibly worthy ones. This only makes it all the more frustrating when this money is taxed, which can often be mitigated, or certainly, reduced when planned appropriately.
Therefore, before giving any money we would recommend reading Comparo’s guide for some helpful hints on how to avoid paying tax when you gift money.
Are there any recipients who I can gift money to tax-free?
Who you are giving the money to makes a great deal of difference. Essentially, the law dictates three exceptions to the rule of being taxed for gifting money:
- Spouses – According to the law you are able to gift money to your spouse completely tax-free unless you did not live together that tax year.
- Civil Partners – The same legislation applies to civil partners as to spouses.
- UK Charities – there is absolutely no limit on the amount of money you can give to a charity tax free. Not only that, but you can also receive some tax relief on your income for gifting money to charity. In fact, if you leave at least 10% or more of the net value of your estate, you can, with some careful planning, reduce the rate of your inheritance by 30% to 40% on certain assets.
This means you have to be mindful of who you are giving the money to, as funds accepted by a child or friend could well face tax.
How much money can I gift without paying tax?
According to (UK Law) every UK citizen may receive an annual gifting allowance of £3,000 which they are able to gift guilt-free, after this point they will face tax. You can actually carry this forward one year, which means if you didn’t make a payment in say 2018 you could make a payment of £6,000 in 2019. However you can’t save for a number of years and give away one lump payment, the absolute maximum would be two years.
You are also permitted to give away small tax free gifts to as many recipients as you like, with the first £250 being utterly tax free. However, if this is given to the same person who has already benefited from your £3,000 tax free gift, you would then have to pay tax.
How much money can I leave to my loved ones without being taxed?
This really lies at the entire heart of the reason for the strict taxation on gifting. Really, it is to prevent individuals from avoiding inheritance tax by gifting their entire estate before they die.
This means that if you gift the money more than seven years before you die it is tax free. Obviously…this one is slightly more difficult to organise. Hindsight here, being valuable, if not implausible.
That being said if you do die between three and seven years after gifting the money, the tax is slightly reduced and known as taper relief.
With tax relief the first £325,000 is exempt from inheritance tax, but any sum that exceeds that amount is taxable at 40%. However, if you are married you can pass your entire estate over to your spouse without being taxed.
There are also a number of other assets that are exempt from tax on inheritance, which include:
- Business: this will depend on how much of the business you own, but 50-100% of this may be eligible for tax relief.
- Agricultural and woodland property: Admittedly not something that is a huge concern for most of our readership, neither agricultural nor woodland property are taxable. However, the trees on woodland property are subject to tax if the they are sold or given away as timber.
- Heritage assets: If you own a building, land or objects of national, scientific historic or artistic importance you could claim relief from inheritance tax. However, this is the case in every situation.
How much money can I give as a wedding gift without being taxed?
This is an option that can be tax exempt, but only within certain parameters. Anyone can give up to £1,000 tax free, a grandparent can give up to £2,500 whilst a parent can gift up to £5,000.
However, if the wedding is called off (obviously before the ceremony) you would then need to pay tax on the gift so it might be worth waiting to the day itself.
What gifts can I give without being taxed?
There are certain other gifts that are not taxed, including:
- Maintenance for a husband, wife or civil partner.
- Maintenance for an ex-husband, ex-wife or civil partner.
- Maintenance for relatives who are dependent on you.
- Maintenance for children under the age of 18 or in full-time education – However, that being said there is a limit to the amount of interest a child can earn from a gift. This is to ensure parents don’t abuse the system and simply gift their children money to avoid paying income tax on their own money. This means that children can earn up to £100 in interest on any money given to them by a parent without paying tax, after that it would be taxed as if it is the parents’ income. Moreover, this only applies for parental income and is not applicable for grandparents or relatives.
- Any monthly or regular payments.
- Regular gifts for celebrations such as Christmas or Birthdays.
- Premiums on life insurance premiums.
Of course, as with all questions of this nature we would advise speaking to a legal professional or an accountant to get a more bespoke answer to your questions. As with anything tax related, you absolutely don’t want to fall foul of HMRC as fines can be strict, and will be enforced to the full letter of the law.
Before you’re ready to gift your cash, you may be interested in looking into comparing the best rates on some long and short term savings accounts, so please do feel free to take a look at our instant comparison page here.