Gifts "exactly" what are they?

loadsamunney

The allowance for gift tax means that one person can give away up to £3k PA to whomever they want without paying gift tax , as I understand it.

My question is what exactly constitutes a gift?
ie..... my mum gives me £3k in April. Does that mean that she cant buy birthday or christmas presents for any of her grandchildren for the rest of the tax year, or treat us to a meal out once in a while or give us petrol money for taking her to visit her family??
How far does HMRC go in assessing any insignificant treats, Because 6 grandchildren and the rest of her family are going to amount to at least another £2k's worth of "presents" .

If anyone answers this, would you please say wether or not you know your comment to be the actual rules or just best estimate. Thanks people

HappyMJ

You can give away as much as you like without paying tax on it. There is no such thing as a gift tax. (fact)

However, if the giver of the gift has excessive assets and happens to die and be liable to inheritance tax then the estate could be liable to tax on those gifts. A gift is usually money or something of ongoing value. Paying for an expense such as petrol is not a gift. (best estimate)

ceeforcat

I am of the view that most on here only give advice because they know 'the actual rules', as you put it. However, for the avoidance of doubt:

https://www.gov.uk/inheritance-tax/gifts-and-exemptions

le_loup

As there is no such thing as a Gift Tax in the UK, there cannot be any "actual rules".

On_My_Lonesome

The link given seems to miss out one important exemption that is frequently forgotten. Gifting out of normal expenditure have a read halfway down this page here

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

Basically though yes she could still continue buying birthday gifts etc and potentially even more if she can claim the gifting out of normal expenditure exemption.

holly_hobby

As highlighted there is not such tax as "gift tax" - there is however Inheritance Tax (IHT).

IHT is a tax levied on the estate of the deceased, if its net value exceeds the nil rate band (currently 325k or upto 650k if there is a transfer of unused spouse nil rate band.

The relevance of any gift o/s of annual allowances, which is 3k per tax yr per person (with the availabilty to carry fwd 1 single unused yr to the next), and not withstanding gifts on marriage, (and if in isolation they are less than the nil rate band), is that any gift made within the 7 yrs proceeding death of the Donor, will be included in their estate for IHT calc purposes - and its the estate itself that pays any tax due on any liability. Of which, there is provision via an insurance policy, that may be made to provide for any IHT liability.

This is just a very basic guide, but if your parents estate is unlikely to be exposed on death to IHT, then you've little to worry about re gifts and IHT exposure on them.

Hope this helps

Holly

thenudeone

HappyMJ wrote: »

You can give away as much as you like without paying tax on it. There is no such thing as a gift tax. (fact)

Correct , but just to be pedantic - neither the giver nor the receiver pay tax on a gift in the UK

holly_hobby

thenudeone wrote: »

Correct , but just to be pedantic - neither the giver nor the receiver pay tax on a gift in the UK

In fact thats also not stictly accurate - assuming death occurs within 7 yrs of the gift, and the gift itself is less than the nil rate threshold (but the estate is exposed to IHT liability), neither the DONOR nor DONEE (receipient) are liable to the tax. As we know the value of the gift is inc in the calc of the decds net estate, with IHT payable by the estate, and according to the total value of the estate exceeding the nil rate threshold.

If however, the gift itself exceeds the nil rate band, the DONEE may elect to meet the bill (gift inter vivos policy would be effected to provide), or the Donor's estate may pay this - so its not strictly true to say that neither the Donor or Donee pay tax on a gift - also if the estate doesn't have the funds to pay the IHT due beneficiaries may be approached by HMRC. Sorry if this also comes across as a bit pedantic in correcting a corrector, to which I apologise in advance !

Hope this helps

Holly

John_Pierpoint

While we are all being pedantic - there is also a common myth that the 7 years tapers off the tax payable, when all 7 years are not achieved.

For most estates the Potentially Exempt Transfer (PET) does not work like that.
1. Person dies.
2. Executor or Personal Representative searches for gifts.
3. Gifts that are not within the above annual limits during the last 7 years are totted up.
4. The total of these PETs are added back to the estate and the estate is taxed accordingly allowing for a nil rate band (currently £325k (plus up to another transferable £325k). The standard rate of InHeritance tax (IHT) is 40%, only if the gifts (PETs) exceed the nil rate band is a tapering rate of tax allowed.
[It would be a bit frustrating if the widow of a rich industrialist died having given away £10,650,000 but only managed to live 6 years and 364 days].

Don't forget that the beneficiary of a large gift may have avoided an Inheritance Tax charge, but if the gift is not being eroded by 2.7% taxation by inflation each year, then it is likely to be clocking up a potential Capital Gains Tax charge. Get the timing wrong and both CGT & IHT could be clocking up.

holly_hobby

If the gift itself exceeds the nil rate band (or after the nil rate band has been exhausted, which can be upto 650k in the case of spousal tsf on death of unused relief), and it falls within the 7 yr cycle, it is treated as a standalone PET (with taper relief as appropriate), as it is a pointless exercise to add it back into the estate.

Hope this helps

Holly

John_Pierpoint

More likely the recipient of the £10 million, not wanting to risk being approached for a tax payment of £4 million, has become a tax exile, with a domicile in (say) N. Cyprus ?
Some global perspective here:
http://en.wikipedia.org/wiki/Inheritance_tax