- If you want to gift money to family members,
it's important that you understand
the potential tax implications of making those gifts,
gaining a basic understanding
and staying within the rules may enable you
to avoid paying tax on the gift altogether.
In this video, we'll be covering,
what actually counts as a gift?
How much can you gift?
Which taxes need to be considered when gifting,
and some special rules.
Before we get started, be sure to hit that subscribe button
as well as the notification bell
to make sure you're kept up to date with
all of our latest content.
This really helps us to produce more helpful videos
and to get you free quality advice
from real qualified accountants.
(upbeat music)
So what actually counts as a gift
to family members in the eyes of the tax man?
Well, HMRC defined a gift as follows,
anything that has value such as money, property,
or possessions or a loss in value
when something's transferred.
For example, if you sell your house to your child
for less than it's worth the difference
in value counts as a gift.
In reality, it would be very difficult for HMRC
to keep track of possessions that have
been accumulated over a lifetime,
and then given away as a gift later in life.
Cash or bank transfer gifts on the other hand
are usually slightly easier to identify
unless you sleep with all your money under a mattress,
then there will usually be some sort of paper
or digital trial indicating when,
how and where a gift was given.
And the majority of gifts are usually given to close family
and friends who are also included in the will of the donor.
That is the person giving the gift.
So it's expected that any gifts received are disclosed
to the executor of the estate
of the donor upon their death.
Before we continue with today's video,
we're thrilled to be launching the,
"Accounting and Tax Academy" membership site this year.
We'll be posting downloadable resources,
tax tutorials, and exclusive courses
that you won't find anywhere else.
And the best part of it is, it's absolutely free to join.
Head to the link
in the description box below to find out more.
(upbeat music)
If you wants to give money to family members,
just remember each individual
or donor has an annual exemption
for gifts of 3000 pounds per tax year.
This means that a grandparent
with three grandchildren could give
them each 1000 pounds without having
to worry about tax.
Be aware that the allowance
is 3000 pounds in total, not per gift or per person.
The annual exemption can be carried forward one tax year.
So any unused amount from
the previous year can also be utilized.
So this can result in a maximum exemption
of 6,000 pounds in a tax share for an individual.
On top of the annual exemption,
an individual can also give away the following gifts
each tax year, wedding or civil ceremony gifts
of up to 1000 pound per person
or 2,500 pounds for a grandchild
or great grandchild and 5,000 pounds for a child.
Normal gifts out of your post-tax income,
for example, Christmas or birthday presents,
but you must be able to maintain your standard
of living after making such gifts.
Something that will look close right
in the special section of this video.
Payments to help with another person's living costs
such as an elderly relative, or child under 18.
Gifts to charities or political parties.
And finally providing the person you
are giving the gift to has not been the recipient
of one of the exemptions above,
then you can also give as many small gifts up
to the value of 250 pounds per item, as you like.
If you exceed these limits
and give money to family in excess
of your allowance, then don't worry.
Nobody is going to be immediately knocking
at your door, asking for the unpaid tax.
But it is important to know that there
may be tax liability at some point in the future
for either yourself, your estate
or the recipient of the gift.
(upbeat music)
You maybe asking why, why do HMRC wants
a tax genuine gifts to family members?
Well, without some form of control and gifting them,
a wealthy individual could simply gift away
all of their wealth and assets before
the end of their life and avoid paying any tax at all.
And that tax is inheritance tax,
which is in effect a tax on an individual's wealth.
In line with current thresholds, inheritance tax
is a tax payable on the death
of an individual whose estate has
a value greater than 325,000 pounds.
Anything above that amount
will be taxed at a rate of 40%.
So how does this fit in that when you give money
to family members?
When you give away
a gift in excess of the gift allowance detailed above,
which is 3000 pounds per tax share,
the gift is usually considered
as a potentially exempt transfer or PET for short.
This is because the gift may still be exempt
from inheritance tax, depending on when the donor,
the person who gifted the assets dies.
If the donor of the gift lives
a further seven years following the date
of the gift and the gift becomes exempt
and no inheritance tax is payable.
But if the donor dies within that seven year period,
then something called taper relief is applied.
It is also worth noting that
under current inheritance tax rules,
the threshold of 325,000 pounds
is increased to 500,000 pounds
if the deceased donor is leaving a property,
they own to their children, including adopted foster
or step children or grandchildren.
And the total value of the donor's estate
is less than 2 million pounds.
(upbeat music)
Now, there are two special rules
that you should be aware of.
Number one, is that any gifts or transfers
between spouses and civil partners are exempt
from inheritance tax irrelevant of the amounts
on the condition that the spouse
or civil partner lives in the UK permanently.
Good news for all married couples and civil partners.
Number two is that there is also a differentiation
to be made between gifts that are made
from an individual savings or existing wealth
and gifts made from surplus taxed income.
Gifts made from savings or existing wealth is
what HMRC target as it is these types
of gifts that would typically fall
under the inheritance tax rules.
However, if it's gifts made out of surplus income,
then these may be exempt.
Below some examples of gifts
of regular payments you might make out
of your surplus income.
Number one is regular deposits
into a savings account for your child.
Number two is regular support payments
to an ex-spouse or civil partner.
And number three, grandparents paying
their grandchildren schooling fees.
You may need to demonstrate to HMRC
that you are able to maintain your current standard
of living following the gift from surplus income.
If HMRC believed that these regular payments
were an attempt to wind down savings income
to avoid inheritance tax, then they
would be treated as gifts from wealth
and be subject to the usual allowances
and inheritance tax rules.