You don’t need to worry about gift tax if you are giving small birthday presents or Christmas gifts. However, if you are transferring a large sum of money or assets, you will need to understand gift and inheritance tax (IHT) rules.
This blog explores gifting money in the UK and the key tax rules and regulations you need to know. If you are unsure, double-check with a financial advisor for personalised advice.
So, do you have to pay gift tax? Keep reading to learn more. We do not give tax advice and everyone’s individual circumstances will always differ, but this is a good overview so you know where to begin.
Gift tax is a tax on the transfer of money or assets where the person giving the gift receives nothing or less than the full value in return.
In the UK, while there isn't a specific gift tax, large gifts may be subject to inheritance tax if the donor dies within seven years. Transfers, whether intended as gifts or not, may trigger tax liability depending on the timing and relationship between the parties involved.
Understanding these rules can help in managing estate planning and avoiding unexpected tax burdens.
Tax on gifts in the UK can apply to money, property or possessions.
When someone gives away something of value without expecting anything in return, this counts as a gift and may be subject to certain tax rules.
There are exceptions to the rule though – gifts for special occasions like weddings or small gifts like birthday presents are often exempt. So, it is always best to double-check before you transfer the asset.
For the tax year 2024/25, you are allowed to give up to £3,000 in tax-free gifts annually without incurring tax, referred to as the annual exemption.
If unused, this allowance can be carried over to the next year, but only once. Any amount beyond this exemption may be subject to inheritance tax if you pass away within seven years of giving the gift.
However, if you live for more than seven years after gifting, the assets typically remain free from tax unless part of a trust.
Some gifts are exempt from tax in the UK. These include:
So, if you want to know how to gift money without tax, take note of the thresholds and situations above.
Yes, the timing of a gift is important for gift/inheritance tax.
Gifts made more than seven years before your death are tax-free. For those made within seven years, taper relief applies, reducing the tax rate depending on the time passed. The rates currently are:
Taper relief lowers the tax owed, not the gift’s value. If you think you received any gifts that would be in scope for this tax, make sure you report this on your self-assessment.
We have covered important aspects of gift tax, including exemptions, timing and inheritance tax implications. If you are planning to give a considerable amount of money or an asset to someone else, always consider an appointment with a financial advisor. These professionals are here to provide personalised advice and ensure you find the best solution for your money.
Borrowing money from friends and family
Should You Save Or Pay Off Debt First?
For more helpful information about how to manage your money, different financial products or what we do at Polar Credit, take a look at our Info Hub.