How much money can you gift?

Cash gifts can be a huge financial help for your loved ones, both while you’re living and after you’ve passed away.

Everyone is permitted by HMRC to gift £3,000 (tax-free) each tax year, this is known as an annual exemption.

But what are the tax implications of giving financial gifts over this amount? And what about leaving an inheritance?

At Reassured, we can help you arrange a life insurance policy for the purpose of leaving an inheritance.

And, life insurance written in trust, could avoid/minimise inheritance tax (meaning more money for your loved ones).

Cover arranged through us starts from just 20p-a-day, simply get in touch to get your FREE quotes.

If you’re looking to leave a gift for your loves ones or have recently inherited a monetary gift, keep reading to find out more…

What is a ‘gift’?

A gift is anything that has a value, such as:

  • Property
  • Money
  • Possessions
  • A loss in value when something is transferred (eg. selling your home to a relative for less than it’s worth, this difference in value will be treated as a gift)

HRMC allows each individual to gift £3,000 (tax-free) each tax year. This is known as your annual exemption

There are also other types of exempted gifts, including:

  • Small gifts (up to the value of £250)
  • Wedding or civil ceremony gifts
  • Gifts to your spouse
  • Gifts to charities and political parties
  • Gifts to cover living costs

Do you pay taxes when you receive a gift?

Typically, there’s no inheritance tax or income tax to pay on exempted gifts, such as the ones mentioned above.

If a gift exceeds a certain amount (for example, is over £3,000) the gift may be subject to income tax.

If you receive a gift and the person who gave you the gift passes away, this gift may then be subject to inheritance tax.

Inheritance tax

Inheritance tax is a tax on the estate of someone who has passed away and is usually charged at 40%.

The value of the estate will often dictate whether inheritance tax is paid or not.

For example, estates below the £325,000 threshold won’t require inheritance tax to be paid.

40% inheritance tax will need to be paid on all estates over £325,000.

Check out the government guidelines for more information on inheritance tax.

At Reassured we're able to offer a free trust service on the majority of the policies we arrange, which could help your loved ones to save on inheritance tax.

The 7-year rule

If you give a gift and then pass away, how long after you made the gift will dictate whether inheritance tax will need to be paid (and if so, how much).

This is known as ‘taper relief’ and is a sliding scale:

  • If you pass away within 3 years of giving a gift, 40% inheritance tax will be charged
  • If you pass away 3 - 4 years after giving a gift, 32% inheritance tax will be charged
  • If you pass away 4 – 5 years after giving a gift, 24% inheritance tax will be charged
  • If you pass away 5 – 6 years after giving a gift, 16% inheritance tax will be charged
  • If you pass away 6 – 7 years after giving a gift, 8% inheritance tax will be charged
  • If you pass away 7 or more years after giving a gift, there will be no inheritance tax to pay

How much money can you give as a gift tax free?

Whether a cash gift will be taxed will depend on certain factors, such as:

  • Your relationship to the beneficiary
  • The occasion (birthday, wedding, paying living expenses etc)
  • The amount given

As discussed above, you can gift £3,000 as you please tax-free, each tax year.

This is £3,000 in total, so if you’re looking to give a cash gift to multiple people you will need to distribute £3,000 between them in order to not pay tax on this gift.

If you do not use your annual exemption, this can be rolled over into the following year.

Your annual exemption would then become £6,000 for that tax year. HMRC only allows this option to be used once.

You are permitted to give small, tax-free, cash gifts up to the value of £250 (for example, as a Christmas or birthday gift).

However, you cannot give small gifts to the same people or person you have gifted your annual exemption to.

If given to the same people or person, there will be tax implications for these gifts.

You’re also permitted to give wedding gifts tax-free. The amount you can give without paying tax will depend on your relationship to the bride and groom:

Relation: Amount:
Parents Up to £5,000
Grandparents/great-grandparents Up to £2,500
Other relative or friend £1,000

Partners are able to gift each other as much money as they wish during their lifetime with no tax implications, as long as both partners are permanent residents of the UK.

Gifts can also be made, tax-free, to charities and political parties.

You’re also permitted to make tax free payments to help cover the living costs of another person (for example an elderly relative who can no longer provide for themselves).

How much money can legally be given to a family member as a gift?

Legally, you can gift a family member as much as you wish. However, there may be tax implications if the amount exceeds your annual exemption.

Not every gift will be subject to tax and whether tax will need to be paid will depend on who you give money to and how much money is given.

If you are gifting money to your spouse, you’re permitted to gift as much money as you’d like throughout your lifetime together without having to pay tax on these gifts (as long as you’re both permanent UK residents).

If gifting money to anyone else in your family, you’ll need to stick within your £3,000 annual exemption for these gifts to be tax-free. Anything over this amount will be subject to tax.

By taking out a life insurance policy, you can provide a cash gift for your loved ones after you’ve passed away.

How do I avoid gift tax?

Paying tax on a gift can be avoided as long as the gift does not exceed £3,000 (your annual exemption) or is another type of exempted gift, such as:

  • Wedding or civil ceremony gift (please see previous table for permitted amounts)
  • Small gifts (up to £250 paid with by regular income)
  • Gifts to charities
  • Gifts to cover living expenses
  • Gifts to your spouse

In terms of life insurance, you could write your policy in trust to avoid/minimise inheritance tax.

Writing your policy in trust is a free option that involves putting someone you trust in charge of your policy after you’ve passed away.

They’ll then be responsible for distributing your pay out as per your wishes.

As your policy will become detached from your estate, your beneficiaries won’t need to pay 40% inheritance tax on the pay out they receive.

Not only can this option help to avoid (or minimise) inheritance tax, it can also help to:

  • Have more control over your policy
  • Avoid the probate process (which can take up to 9 months)

At Reassured, not only can our team of life insurance experts take you through the whole process of securing life cover, but our customer service team can help you write your policy in trust, (if offered by that insurer).

Do I need to declare cash gifts to HMRC?

You don’t need to inform HMRC of any small cash gifts you make, these are gifts under £250.

You’ll also not be required to declare any gifts made using your yearly £3,000 annual exemption.

Anything over these amounts may be subject to tax and will need to be declared to HMRC.

Failure to declare gifts can lead to expensive fines.

What is the best way to gift money?

You can gift money while you’re still alive by:

  • Transferring money directly to the bank account of your beneficiary
  • Writing them a cheque

You can also gift your loved ones money after you’ve passed away by leaving them an inheritance.

You can do this by taking out a life insurance policy and naming whoever you’d like to benefit from your policy as a beneficiary.

If you pass away during the term of your policy, a pay out will be made and your loved ones will receive their inheritance.

By writing your policy in trust your loved ones could avoid/minimise paying 40% inheritance tax and will benefit as much as possible from your policy.

Why not get in touch with our team today to talk through your options?

Can I gift my house to a family member?

The answer is yes, you can choose to gift your home to a family member after you’ve passed away.

You’ll need to name who you would like to inherit the property as a beneficiary in your will.

Whether they’ll need to pay inheritance tax on this asset will depend on the price of your property.

If your property value is under the £325,000 threshold, it’s likely they’ll avoid having to pay inheritance tax.

However, if your property is over the £325,000 threshold, inheritance tax will be applied.

You can avoid, or minimise, inheritance tax being paid by gifting your property while you’re still alive.

If you live for at least 7 years after the gift has been given, the property will fall outside of your estate and inheritance tax won’t be charged.

If you pass away within 3 – 7 years of making the gift, it will be subject to inheritance tax.

If you choose to gift your home to a family member while you’re still living, you’ll be required by HMRC to either move out or pay your beneficiary rent (usually at the going rate of similar properties in the area) in order for them to not pay tax on this gift.

If you’re paying a mortgage and would like a loved one to inherit this property if you were to pass away, a pay out from a life insurance policy can provide the funds to help pay off the remaining mortgage balance in full.

This will allow them to take ownership of the home.

If you’re considering gifting a loved one your home, or any other large financial gift, it’s wise to speak to a financial professional as they’ll be able to outline any tax implications you may face.

Leave an inheritance for your loved ones with life insurance

Not only can a life insurance policy provide your loved ones with an inheritance, but it can also help to protect many other aspects of your life, including:

  • Your mortgage
  • Family living costs
  • Funeral costs

At Reassured, our award-winning team can take you through the whole application process and explain all your options to help you make an informed decision.

We can also help to decode any life insurance jargon you might not understand.

Why not get started and get your free quotes today?

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