£3,000 Annual Gift Exemption Question

Curious_Moose

This is my understanding based on the government's website, so please correct if wrong.

You can gift someone £3,000 each tax year without any tax liability. So if the donor dies it would not be a tax issue for either inheritance tax or the individual receiving the £3,000.  If the donor does not die, again no issue for either party. 

Q - Does the recipient need to declare the £3,000 to HMRC at any point, or as it is a gift within the limit, can HMRC be left out of the transaction?

Q - If Person A gifts £3,000 to Person B and Person C also gifts £3,000 to Person B does that change anything as Person B has now received two gifts of £3,000 rather than one. Or is the restriction on the giver rather than the receiver?

Note - The above relates to the inheritance tax rules from the government website, so I'm not sure if that complicates this in any way. I'm basically looking to clarify if you can gift £3,000 to someone without HMRC needing to be informed.
How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts - GOV.UK (www.gov.uk)


Thanks

Albermarle

No need to inform HMRC. However it is a good idea to record the gifts, as it will help the executor of your will to sort your estate out.
In fact no need to inform HMRC of any gifts.

Perhaps do not be fixated on the £3K pa. If you give more away and then unfortunately die within 7 years, you will not pay any more IHT than you would have done if not making the gift. 

Curious_Moose

Thanks for the quick reply. Just to clarify:

1) Two people can each separately gift £3,000 to the same person in the same tax year and HMRC does not need to be informed by anyone. The recipient doesn't need to declare it as "income" anywhere

2) If either of the donors die within 7 years, it is still not an issue for HMRC as it is allowed for under the annual gift exemption

[Deleted User]

Curious_Moose said:

Thanks for the quick reply. Just to clarify:

1) Two people can each separately gift £3,000 to the same person in the same tax year and HMRC does not need to be informed by anyone. The recipient doesn't need to declare it as "income" anywhere

2) If either of the donors die within 7 years, it is still not an issue for HMRC as it is allowed for under the annual gift exemption

Yes to both - and an additional £3000 per donor if gift exemption not used previous year. 

On informing HMRC - you don’t have to declare any gift, regardless of its size. 

There is also the potential for unlimited regular gifts out of income to peruse. Look under ‘If you make regular payments’

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

Of course, none of this is relevant if the estate potentially falls below the threshold. 

Curious_Moose

Again, thank you for the quick response.

pysifr

As regards the £3000 exemption, can I use a previous year's exemption, and then carry forward an unused current year's exemption. eg. Assume I have not used the £3000 exemption in 2020-21 tax year. In 2021-22 tax year, I use a £3000 exemption - is this the unused exemption from 2020-21, leaving the 2021-22 exemption available to carry forward to 2022-23? .

Nomunnofun1

pysifr said:

As regards the £3000 exemption, can I use a previous year's exemption, and then carry forward an unused current year's exemption. eg. Assume I have not used the £3000 exemption in 2020-21 tax year. In 2021-22 tax year, I use a £3000 exemption - is this the unused exemption from 2020-21, leaving the 2021-22 exemption available to carry forward to 2022-23? .

No. In your example you made no gifts in 2020/21. In 2021/22, you would, therefore, have the £3000 exemption for that year available plus £3000 unused from the previous year - £6000 in total. 

Your only opportunity to utilise the £3000 exemption for 2020/21 is in 2020/21 or, if not used, in 2021/22 by making gifts over £3000 in that year.