Can you gift money without paying tax?

Yes, if you meet any of the following criteria:

  • You give the gift more than seven years before you die

  • You give the gift to your spouse, civil partner, or registered UK charity

  • The amount is less than your annual allowance of 3,000

How can you gift money?

The easiest way is to transfer the money into the recipient's bank account. This could be a current account, or a savings account.

If the person you are gifting money to plans to put it in savings they can withdraw from easily, they could open an instant access savings account.

There are many types of savings account available. You can compare them here to find the best one for your beneficiary.

You can also gift money by:

Why are gifts taxed?

It is to prevent people avoiding Inheritance Tax by giving away all their money before they die.

You can still gift money, but HM Revenue and Customs (HMRC) rules mean you cannot give away large sums without paying tax.

What is Inheritance Tax?

Who pays Inheritance Tax?

Funds from your estate are used to pay Inheritance Tax. Anyone who benefits from your will gets their share of the estate after the tax has been deducted.

It is the tax you have to pay on your estate when you die, if it is worth more than 325,000. Your estate includes:

  • Money you have in bank accounts

  • Property you own

  • Investments or possessions

Inheritance Tax is usually payable on the value of your estate over 325,000, and is charged at 40%. This is reduced to 36% if you donate 10% or more of the estate to charity.

For example, if your estate is worth 400,000 and you donate 40,000 to charity, you only pay 36% on 35,000.

Does it matter when you gift the money?

Yes, gifts given more than seven years before you die are exempt from Inheritance Tax.

Any gift given between three and seven years before your death will be liable for Inheritance Tax at a reduced rate. This is known as taper relief.

If you die less than seven years after you have gifted money, the gift will be subject to Inheritance Tax. But the amount of tax payable will depend on the value of the gift:

  1. 1.

    If the gift is above the Inheritance Tax threshold: The recipient, or a representative of your estate, has to pay Inheritance Tax on the total value of the gift. E.g. gifts over 325,000.

  2. 2.

    If the gift is below the Inheritance Tax threshold: The value of the gift is added to your estate, and tax is paid on the amount over the threshold. E.g. if your estate is worth 300,000 and you gifted 50,000, your estate only pays tax on 25,000.

Who can you gift money to?

You can gift money to anyone, but you can give money away without paying Inheritance Tax to these exempt beneficiaries:

  • Your husband, wife or civil partner, as long as they live permanently in the UK

  • Registered UK charities (you can check which charities qualify on the GOV.UK website)

  • Some national organisations, like universities, museums and the National Trust

There is no limit on how much you can gift to exempt beneficiaries.

How much can you gift each year?

You can give away a total of 3,000 each tax year to people other than exempt beneficiaries without paying tax.

Your annual exemption can also be carried forward one year if you do not use it. For example, if you make no cash gifts this year, you can give away a total of 6,000 next year.

What counts as a gift?

Small cash gifts

You can also give away small tax free gifts of up to 250 to as many people as you like during the tax year, but:

  • You cannot give a gift of more than 250, and avoid paying tax on the first 250. For example, you cannot give a gift of 400 and only pay tax for 150.

  • You will have to pay tax on small cash gifts you give to people who have already received your 3,000 annual exemption limit.

Wedding gifts

You can also give cash gifts for weddings or civil partnerships without paying tax, but the limits depend on your relationship with the person receiving the money:

  • If you are a parent, you can give up to 5,000

  • If you are a grandparent, you can give up to 2,500

  • Anyone else, can give up to 1,000

However, if the wedding or civil partnership is called off and you have given a gift, it will no longer be exempt from Inheritance Tax.

Regular gifts or payments

Gifts that are made as part of your taxed income (not your savings) are also exempt from tax, including:

  • Maintenance for your husband, wife or civil partner

  • Maintenance for your ex-husband, ex-wife or civil partner

  • Maintenance for relatives who depend on you, e.g. elderly parents

  • Maintenance for children under 18 or in full time education

  • Monthly or regular payments to anyone

  • Regular gifts for Christmas, birthdays or wedding and civil partnership anniversaries

  • Premiums on life insurance policies

GOV.UK explains that while these gifts are exempt from tax, you must be able to maintain your current standard of living after making the gift.

Gifting money FAQs

Q

Do I need to declare cash gifts to HMRC?

A

No, if it falls under the 3,000 annual allowance, you do not need to declare it.

Q

Can I gift money in my will without paying Inheritance Tax?

A

Yes, Inheritance Tax is only payable if your estate is worth more than 325,000. Anything under this amount will not be taxed.