Giving Cash Gifts: How much can you gift in your lifetime

In the UK, rising levels of generational wealth over recent decades have paved the way for inheritances, gifts (wealth transfers made during the donor’s lifetime), or loans. Consequently, it’s important to understand the impact of giving gifts during your lifetime. Whether you’re choosing to offer financial gifts to your loved ones or simply want to help your children hop on the property ladder, in this blog, Hello Estate Planning demystifies complicated inheritance tax rules to help you make smarter decisions. 

There are rules on giving gifts

First, inheritance tax (IHT) may have to be paid after your death on some gifts you’ve given. However, gifts made less than 7 years before death may be taxed based on: 

  • Who you gift and their relationship to you
  • Gift value
  • When the gift was given 

Gifts include:

  • Money
  • household and personal items such as jewellery or antiques
  • A house, land or building,
  • Stocks and shares
  • Unlisted shares held for less than 2 years prior to your death 

Gifts also include any money lost when you sell something for less than its market value. The difference between the sale price and market price is considered to be a gift. Additionally, anything you choose to leave in your will is not considered a gift but a part of your estate. Crucially, the value of your estate will be used to determine the amount of IHT to be paid. 

Gifts to your spouse and Charity Donations: Gift Exemptions from Inheritance Tax

Some gifts are exempt from IHT, including:

  • Gifts between spouses or civil partners (as long as your partner lives in the UK permanently and is in a marriage or civil partnership with you)
  • Gifts to charities or political parties 

Use your £3,000 annual allowance to give tax free gifts 

Tax rules enable you to give away up to £3,000 worth of tax-free gifts without accumulating any value to your estate. This is known as the annual exemption. 

Small gift allowance

There are no restrictions on giving away up to £250 per person during the tax year, as long as you have not used another allowance for the same person. For example, birthday or holiday gifts given from your regular income are exempt from IHT. 

Gifts for weddings or civil partnerships

Each tax year, you can give up a certain amount of gifts to someone who is getting married or entering  civil partnership:

  • £5,000 to a child
  • £2,500 to a grandchild or great-grandchild
  • £1,000 to any other person 

Remember the 7 year rule

If you live for 7 years after giving a gift, no tax is due on that portion. However, if you pass within 7 years of giving a gift, you’re liable for IHT and the amount of tax depends on when you gave it. For instance, gifts given in the 3 years prior to death are taxed at 40% while gifts given between 3-7 years before your death are taxed on a scale referred to as ‘taper relief’, where tax rates taper off from 32% if the gift was given between 3-4 years and death, and 0% if the gift was given 7 years post-death. 

Navigating the complex web of inheritance tax rules can be daunting. At Hello Estate Planning, we’re here to take the worry out of estate planning. If you’re interested in giving  a gift to a loved one, or want to learn more about inheritance tax rules and how they may apply to your individual circumstances, please contact an experienced member of our team now.