Limits on giving as a gift?

Mr_Incredible

Is there a limit on how much you can give someone as a

CLAPTON

Mr_Incredible wrote: »

Is there a limit on how much money you can give someone as a gift?

Before it incurs tax or anything that may detract from the amount?

no gift taxes in the Uk


however, if you die without 7 years the value of the gift will be added to the value of your estate for IHT purposes so a tax liability may or may not arise on the estate

xylophone

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

agrinnall

I would say we ought to have a sticky on this given the number of times the question is asked and the apparent inability of posters to either search on here or using a search engine, but as most of those people probably wouldn't bother to read the sticky either it would probably be a waste of time.

le_loup

It's so in so many questions but, I agree, this one is so basic and we can only guess how many people do a search and get the answer ... we know how many don't!

Savvy_Sue

Is this a fair summary? If someone writes a better one I'll sticky it ...

There is no 'gift tax' in the UK. Anyone can give anyone else any amount of money, and HMRC will not want to know.

However:

If you give a lot of money away and then die before 7 years are up, those gifts may be counted within your estate, and therefore your estate may be liable to pay (more) Inheritance Tax (IHT). This is calculated on a sliding scale, ie survive 6 years and less of it will 'count' for IHT purposes than if you only survive 2.

Note that the people you've given the money TO will not have to pay any tax on the gifted money, either when you give them the money or when you die. Nor will those who are benefitting from your money after your death: they'll get less, but they will not personally have to pay any tax, because HMRC gets first dibs, and you get your share from whatever's left.

Generally, up to £3000 per tax year won't count, and you can also give p to £250 per year to a number of people, and there's also an exception for when your child marries.

If you are in the fortunate position of being able to give away large sums, and you suspect your estate will be liable to IHT, then paying someone for professional advice would almost certainly save you money, because the most obvious ways of giving money away won't have the desired effect, or will have unintended consequences.

There is something else to be aware of, which is sometimes confused with the 'seven year rule' relating to IHT, and that is Deliberate Deprivation of Assets.

What DDA means is that if you give money away (or sell your house and give your children the money, or give them the house), and subsequently need means-tested benefits or to go into a care home, then the calculations can be done AS IF YOU STILL HAD THAT MONEY. That's not a problem if you've left yourself plenty to live on, but otherwise you can expect some difficult conversations.

Some people think that local authorities can or will only go back seven years when looking at DDA, but they can theoretically go back much further than that. If you give your money away while you are still fit and well, then it will be harder to argue that you did not do it in order to avoid paying for things. But if your first thought is "it's really time I moved into a care home" and your second is "I know, I'll give the kids my house so that I don't have to pay for that care home", you have already lost the argument.

Previous advice applies here as well: if you've got enough money to have to worry about this situation, it may well be worth paying for professional advice.

getmore4less

Savvy_Sue wrote: »

Is this a fair summary? If someone writes a better one I'll sticky it ...

There is no 'gift tax' in the UK. Anyone can give anyone else any amount of money, and HMRC will not want to know.

However:

If you give a lot of money away and then die before 7 years are up, those gifts may be counted within your estate, and therefore your estate may be liable to pay (more) Inheritance Tax (IHT). This is calculated on a sliding scale, ie survive 6 years and less of it will 'count' for IHT purposes than if you only survive 2.


Incomplete : only applies to gifts that total over the nil rate
Pedant moment : not less of the gift counts it is the tax that is reduced.


also note the order and timing can be very important if you expect the total to go over the nil rate band.


http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/gifts.htm#4


Note that the people you've given the money TO will not have to pay any tax on the gifted money, either when you give them the money or when you die. Nor will those who are benefitting from your money after your death: they'll get less, but they will not personally have to pay any tax, because HMRC gets first dibs, and you get your share from whatever's left.


In some circumstances the tax can be payable by the receiver of the gift if the estate does not have the assets to pay the tax

Generally, up to £3000 per tax year won't count, and you can also give p to £250 per year to a number of people, and there's also an exception for when your child marries.


summary of the main gift exemptions
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

If you are in the fortunate position of being able to give away large sums, and you suspect your estate will be liable to IHT, then paying someone for professional advice would almost certainly save you money, because the most obvious ways of giving money away won't have the desired effect, or will have unintended consequences.

There is something else to be aware of, which is sometimes confused with the 'seven year rule' relating to IHT, and that is Deliberate Deprivation of Assets.

What DDA means is that if you give money away (or sell your house and give your children the money, or give them the house), and subsequently need means-tested benefits or to go into a care home, then the calculations can be done AS IF YOU STILL HAD THAT MONEY. That's not a problem if you've left yourself plenty to live on, but otherwise you can expect some difficult conversations.

Some people think that local authorities can or will only go back seven years when looking at DDA, but they can theoretically go back much further than that. If you give your money away while you are still fit and well, then it will be harder to argue that you did not do it in order to avoid paying for things. But if your first thought is "it's really time I moved into a care home" and your second is "I know, I'll give the kids my house so that I don't have to pay for that care home", you have already lost the argument.

Previous advice applies here as well: if you've got enough money to have to worry about this situation, it may well be worth paying for professional advice.

The other issue with gifts and potential future taxes.


Gift with reservations,(you have to avoid an interest in the asset like living in a gifted house or having conditions on a cash gift)
http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm04071.htm


Pre owned assets
http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM44001.htm,

dzug1

Savvy_Sue wrote: »

Is this a fair summary? If someone writes a better one I'll sticky it ...

There is no 'gift tax' in the UK. Anyone can give anyone else any amount of money, and HMRC will not want to know.

However:

If you give a lot of money away and then die before 7 years are up, those gifts may be counted within your estate, and therefore your estate may be liable to pay (more) Inheritance Tax (IHT). This is calculated on a sliding scale, ie survive 6 years and less of it will 'count' for IHT purposes than if you only survive 2.
.

Looks fine - except IHT isn't for most people calculated on a sliding scale. That only comes into play if you have given away more than the nil rate band of £325000 - £650000 if your deceased spouse did not use their allowance


And on a more technical level, it's the tax that is subject to the sliding scale, not the gift

uknick

Savvy_Sue wrote: »

Note that the people you've given the money TO will not have to pay any tax on the gifted money, either when you give them the money or when you die. Nor will those who are benefitting from your money after your death: they'll get less, but they will not personally have to pay any tax, because HMRC gets first dibs, and you get your share from whatever's left.

This is not strictly correct.

If there is enough money left in the estate then yes, any IHT liability gets paid first.

However, if there is not enough money in the estate to pay the IHT the receiver of the gift, and any receiver of subsequent gifts, that takes the estate into IHT is liable for the element on their gift.

If this were not the case you could give away all your estate on your death bed and it would not have to pay any IHT liability.


http://www.hmrc.gov.uk/inheritancetax/paying-iht/who-pays.htm

Your_Hero

Savvy_Sue wrote: »

Is this a fair summary? If someone writes a better one I'll sticky it ...

There is no 'gift tax' in the UK. Anyone can give anyone else any amount of money, and HMRC will not want to know.

However:

If you give a lot of money away and then die before 7 years are up, those gifts may be counted within your estate, and therefore your estate may be liable to pay (more) Inheritance Tax (IHT). This is calculated on a sliding scale, ie survive 6 years and less of it will 'count' for IHT purposes than if you only survive 2.

Note that the people you've given the money TO will not have to pay any tax on the gifted money, either when you give them the money or when you die. Nor will those who are benefitting from your money after your death: they'll get less, but they will not personally have to pay any tax, because HMRC gets first dibs, and you get your share from whatever's left.

I appreciate your attempt to help others and we need more like you Nice attempt, just some small errors.


This 'sliding scale' ('tapering relief') depends on the size of the PET (potentially exempt transfer). All gifts made are PETs. So if the donor dies within 7 years of making the gift, it becomes a Failed PET. So you are right in saying that the value of the PET is added back to the estate (as long as gift is over £3k) but they do not automatically benefit from a lower IHT.

Gifts are set against the NRB first before the rest of the estate. Therefore, no tapering relief is due unless the total value of all gifts within the last 7 years exceed the NRB, then the excess is tapered on the sliding scale.

This also brings me to the second point. If the gift/part of the gift exceeds the NRB, the person who received the gift is normally the one liable for the IHT and has to pay this (although the executors can pay this first and reclaim later off the recipient).

Generally, up to £3000 per tax year won't count, and you can also give p to £250 per year to a number of people, and there's also an exception for when your child marries.

Correct, and can also use the previous tax year's £3k allowance if unused. Therefore a married couple can gift £6k each, totalling £12k if they've not gifted anything last year either.


Complex area, but appreciate you trying.

le_loup

OK folks, I know tax is all about detail, but ...
SavvySue got it just about right without going into all the nuances.
As a sticky to stop the incessant "can I give my mother £7.13.9d without her paying tax", it's fine.
The display of detailed knowledge on this forum is terrific but most peoples' tax is fairly straightforward.