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Confused about tax in gifting friend £20k

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Back in 2015, my friend (not related) helped me greatly with the choices I made in investing with my isa allowance, the funds he recommended and I then invested in have done amazingly since then and i've invested yearly.
I would like to gift him around 20k to say thanks as I would not be in this position without him but am confused about tax implications.

Am I right in thinking there will be no tax due from either of us as long as I stay alive for over 7 years?  And if not then different rates of inheritance tax kick in depending on the year I die? Or is there any other tax I may be missing? 

Thank you

Comments

  • Jeremy535897
    Jeremy535897 Posts: 10,733 Forumite
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    You have an annual exemption of £3,000, plus you can bring forward one year's unused exemption. These may reduce the gift to £14,000. 

    Your nil rate band is at least £325,000 and may be as much as £1 million, so there is very little chance of any inheritance tax being due on the gift, unless you die within seven years of making it, and made massive other gifts in those seven years.
  • MalMonroe
    MalMonroe Posts: 5,783 Forumite
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    madfistbt said:
    Back in 2015, my friend (not related) helped me greatly with the choices I made in investing with my isa allowance, the funds he recommended and I then invested in have done amazingly since then and i've invested yearly.
    I would like to gift him around 20k to say thanks as I would not be in this position without him but am confused about tax implications.

    Am I right in thinking there will be no tax due from either of us as long as I stay alive for over 7 years?  And if not then different rates of inheritance tax kick in depending on the year I die? Or is there any other tax I may be missing? 

    Thank you
    Hi, I'm sorry that I don't know any legal implications here (and Jeremy, above, has addressed those) but I just felt I wanted to say what a lovely friend I think you are - I know your friend helped you out in the first place but not a lot of people would want to do what you are intending. What a great friendship you two have. Today, reading your post has really cheered me up and restored my faith in humanity. Thank you!    :) 
    Please note - taken from the Forum Rules and amended for my own personal use (with thanks) : It is up to you to investigate, check, double-check and check yet again before you make any decisions or take any action based on any information you glean from any of my posts. Although I do carry out careful research before posting and never intend to mislead or supply out-of-date or incorrect information, please do not rely 100% on what you are reading. Verify everything in order to protect yourself as you are responsible for any action you consequently take.
  • madfistbt
    madfistbt Posts: 27 Forumite
    Seventh Anniversary 10 Posts Combo Breaker
    You have an annual exemption of £3,000, plus you can bring forward one year's unused exemption. These may reduce the gift to £14,000. 

    Your nil rate band is at least £325,000 and may be as much as £1 million, so there is very little chance of any inheritance tax being due on the gift, unless you die within seven years of making it, and made massive other gifts in those seven years.
    Thank you for that, is the nil rate band of £325k a lifetime allowance I can send or does it adjust and reset 7 years after sending a certain amount?
  • p00hsticks
    p00hsticks Posts: 14,437 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    edited 4 July 2021 at 2:35PM
    madfistbt said:
    You have an annual exemption of £3,000, plus you can bring forward one year's unused exemption. These may reduce the gift to £14,000. 

    Your nil rate band is at least £325,000 and may be as much as £1 million, so there is very little chance of any inheritance tax being due on the gift, unless you die within seven years of making it, and made massive other gifts in those seven years.
    Thank you for that, is the nil rate band of £325k a lifetime allowance I can send or does it adjust and reset 7 years after sending a certain amount?

    More like a 'death time' allowance. The nil rate band (NRB) is (currently) the sum that your estate has to exceed after your death before inheritance tax (IHT) is potentially due. Many estates can be significantly higher and pay not IHT, as one spouse can potentially inherit the others NRB,  there is also an addiitonal residential NRB that applies if property is being left to direct decendants, and bequests to charities are exempt.
    If you make gifts in the seven years prior to your death, then these potentially form part of your estate
  • Jeremy535897
    Jeremy535897 Posts: 10,733 Forumite
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    madfistbt said:
    You have an annual exemption of £3,000, plus you can bring forward one year's unused exemption. These may reduce the gift to £14,000. 

    Your nil rate band is at least £325,000 and may be as much as £1 million, so there is very little chance of any inheritance tax being due on the gift, unless you die within seven years of making it, and made massive other gifts in those seven years.
    Thank you for that, is the nil rate band of £325k a lifetime allowance I can send or does it adjust and reset 7 years after sending a certain amount?
    Inheritance tax looks at cumulative gifts. Give Joe £300,000 tomorrow, and seven years later the gift is totally ignored. But if you die at any time in the seven years after giving Joe £300,000, your estate's nil rate band is reduced by £300,000 (ignoring annual exemptions). There is still no tax on the gift, but there may be more inheritance tax on your estate.

    This explains the situation clearly:
    https://www.gov.uk/inheritance-tax/gifts

  • madfistbt
    madfistbt Posts: 27 Forumite
    Seventh Anniversary 10 Posts Combo Breaker
    Thank you, appreciate the replies, so in layman's terms, estate is the value of someone's net worth. And when someone dies their estate has to exceed the £325k allowance (nil rate band) before any inheritance tax is due. But if the gift I sent was prior to 7 years before dying this is no longer considered for any inheritance tax?

    So basically I can send my friend £20k and neither of us pay tax if both avoid dying in 7 years? :smile:lol
  • naedanger
    naedanger Posts: 3,105 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    edited 4 July 2021 at 6:46PM
    madfistbt said:
    Thank you, appreciate the replies, so in layman's terms, estate is the value of someone's net worth. And when someone dies their estate has to exceed the £325k allowance (nil rate band) before any inheritance tax is due. But if the gift I sent was prior to 7 years before dying this is no longer considered for any inheritance tax?

    So basically I can send my friend £20k and neither of us pay tax if both avoid dying in 7 years? :smile:lol
    Yes, that's correct. (And only you need to avoid dying in the next 7 years to avoid the potential tax.)


  • Keep_pedalling
    Keep_pedalling Posts: 20,835 Forumite
    Tenth Anniversary 10,000 Posts Name Dropper Photogenic
    madfistbt said:
    Thank you, appreciate the replies, so in layman's terms, estate is the value of someone's net worth. And when someone dies their estate has to exceed the £325k allowance (nil rate band) before any inheritance tax is due. But if the gift I sent was prior to 7 years before dying this is no longer considered for any inheritance tax?

    So basically I can send my friend £20k and neither of us pay tax if both avoid dying in 7 years? :smile:lol
    The date of your friends death is of no importance, it is just the giver who has to survive seven years, but even if you do die within that time your friend will pay no tax, that will come out of your remaining assets.
  • zagfles
    zagfles Posts: 21,435 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Chutzpah Haggler
    MalMonroe said:
    madfistbt said:
    Back in 2015, my friend (not related) helped me greatly with the choices I made in investing with my isa allowance, the funds he recommended and I then invested in have done amazingly since then and i've invested yearly.
    I would like to gift him around 20k to say thanks as I would not be in this position without him but am confused about tax implications.

    Am I right in thinking there will be no tax due from either of us as long as I stay alive for over 7 years?  And if not then different rates of inheritance tax kick in depending on the year I die? Or is there any other tax I may be missing? 

    Thank you
    Hi, I'm sorry that I don't know any legal implications here (and Jeremy, above, has addressed those) but I just felt I wanted to say what a lovely friend I think you are - I know your friend helped you out in the first place but not a lot of people would want to do what you are intending. What a great friendship you two have. Today, reading your post has really cheered me up and restored my faith in humanity. Thank you!    :) 
    While I'd agree with the sentiments above I'd urge a note of caution with such a massive gift. The stockmarket has done well over recent years, a bog standard global equity tracker would have doubled in value over the last 5 years. But stockmarkets can go down as well. What if after making this gift the stockmarket crashed or a prolonged bear market reduced prices by 40% or so? It's happened so many times in the past. Would you then want the £20k back? Or feel resentful at having gifted it?
    I've helped people in a similar way but would not accept such a large gift in these circumstances, it's them that took the risk, I would not be bailing them out if the investments did badly, so I wouldn't want to share in the profits if they did well. A nice bottle of something maybe, but not £20k !!

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