How to EnsureTax Free Cash Gifts

norm27

Hello. I apologise if this is a stupid question but here goes. I am proposing to give my son a tax free Gift of £6000 cash in the current financial year by combining the £3000 allowance for  each of the financial years 2022/23 and 2023/24 given that I made no Gift to him in 2022/23. My son is 30 years old, employed and a basic rate taxpayer.

How does my son ensure that he will not be taxed on this amount as his bank account will show additional income of £6000 in 2023/24. How will you HMRC know not to tax him on it - should he contact them with his bank account details and register with them the fact he has received a Gift of £6000 which should be tax free?

Thankyou.

 

molerat

It is simply not taxable income and no one will want to know or report it to HMRC.

[Deleted User]

He won’t be taxed because there is no gift tax in the U.K. 

It has absolutely no relevance whatsoever on your son’s tax position and HMRC do not need to be informed. 

You can gift your son whatever amount you like - no limit . He will not be liable to any tax on it. Only in the situation that you pass away within seven years of the gift AND your estate exceeds the inheritance tax threshold  would there be any tax implications - for your estate. 

Albermarle

a tax free Gift of £6000 cash

There is no such specific thing as a tax free gift, it is just a gift.

As above you can give him £60,000 if you like, and HMRC are not interested . 

anselld

Albermarle said:

a tax free Gift of £6000 cash

There is no such specific thing as a tax free gift, it is just a gift.

As above you can give him £60,000 if you like, and HMRC are not interested . 

...  except if you die within 7 years.

GrubbyGirl_2

The issue of inheritance tax on gifts is interesting.  Because the amount you can gift is so low at £3k it would be so easy to just go to the bank and take out the £6k in cash and hand it over.  If the person died how on earth would the executer know where that money went and that it was a gift rather than paying a bill?

[Deleted User]

GrubbyGirl_2 said:

The issue of inheritance tax on gifts is interesting.  Because the amount you can gift is so low at £3k it would be so easy to just go to the bank and take out the £6k in cash and hand it over.  If the person died how on earth would the executer know where that money went and that it was a gift rather than paying a bill?

The answer is that they don’t. However, it is the legal duty of an executor to accurately determine the value of the estate to the best of their ability.

You also miss the point that the £3000 gift exemption does not prevent one from gifting whatever they like. Any gift above the £3000 exemption only comes into play if the estate is sufficiently large to attract inheritance tax AND if the donor dies within seven years of making that gift. 

There is also the huge scope under the ‘regular gifts out of income’ - too often ignored.

Albermarle

anselld said:

Albermarle said:

a tax free Gift of £6000 cash

There is no such specific thing as a tax free gift, it is just a gift.

As above you can give him £60,000 if you like, and HMRC are not interested . 

...  except if you die within 7 years.

That is only an issue, if the givers estate is liable for IHT and they are dead of course.

I was just trying to make the point to the OP that at the point of giving, HMRC are not interested and there is no taxation involved. This is the misconception that many people/posters, including the OP, seem to be labouring under. 

norm27

Thankyou all for your comments, they are much appreciated. I have always thought the situation was as follows : An individual is liable to pay 20% income tax on his/her annual income above whatever the prevailing threshold is eg £12,500. So, if my son had income of £30,000 this financial year he would be liable for 20% of £17,500 = £3500. If I gifted him £6000 his income for that year would be £36,000. He would therefore be liable to pay 20% on £23,500 =£4,700. He has therefore paid income tax on the £6000.

Have I gone wrong?

Thankyou.

Jeremy535897

Gifts are not income, and you don't pay any tax on them, so yes, you have gone wrong. 

[Deleted User]

norm27 said:

Thankyou all for your comments, they are much appreciated. I have always thought the situation was as follows : An individual is liable to pay 20% income tax on his/her annual income above whatever the prevailing threshold is eg £12,500. So, if my son had income of £30,000 this financial year he would be liable for 20% of £17,500 = £3500. If I gifted him £6000 his income for that year would be £36,000. He would therefore be liable to pay 20% on £23,500 =£4,700. He has therefore paid income tax on the £6000.

Have I gone wrong?

Thankyou.

If you gifted your son £50000 his taxable income would still be £30000. 

See attached from HMRC community forum.

https://community.hmrc.gov.uk/customerforums/cgt/b7f75b45-e11f-ed11-b5cf-00155d973ade