HMRC has confirmed that individuals must carefully check the rules before gifting money to family or friends, as gifts may not be tax-free and could be treated as part of the giver's estate. The main exemption allows gifts of up to £250 per person per year, while an annual inheritance tax-free allowance of £3,000 is also available.
Key Gift Allowances
According to HMRC, people can give away up to £3,000 each year free of inheritance tax. If this amount is not used in one year, it can be carried forward to the next, allowing a gift of £6,000 the following year. The £250 exemption applies to gifts of up to £250 per person, and a giver can use this for as many individuals as they wish annually. However, the same person cannot benefit from both the £250 exemption and the annual £3,000 allowance simultaneously.
Wedding Gift Exemptions
Special rules apply to wedding gifts. Individuals can give up to £5,000 to their children, £2,500 to grandchildren, and £1,000 to anyone else. These amounts can be combined with the annual £3,000 tax-free allowance if desired.
Gifts from Surplus Income
Gifts from surplus income are permitted but must come from income rather than savings. This rule is intended for regular payments such as rent, savings contributions, or financial support for elderly relatives. According to a Freedom of Information request, only 430 people used this exemption in 2022. Such gifts must be clearly documented and originate from income.
There is no requirement to notify HMRC for straightforward cash gifts, meaning they typically go unnoticed during the giver's lifetime. However, after death, executors or administrators review bank accounts and financial records. If an underpayment of tax is discovered, HMRC can charge penalties.
It is advisable to keep clear records of all gifts made, including amounts, dates, and recipients, to avoid complications during estate administration. Understanding these rules can help individuals make tax-efficient gifts while avoiding unexpected tax liabilities.
