How much Tax is there to pay on a ‘Cash Gift’?
We received a call today from a prospective client asking us whether there would be any tax to pay by either him or the recipients of cash gifts he wanted to make. He had called 10 other accountants before us for advice: 7 of them had no idea what the answer was and the other 3 had told him that there would be Capital Gains Tax or Income Tax to pay.
Fortunately our Tax Manager was on-hand to put him right and fill in the gaps. Actually, true gifts of cash are taxed solely under the Inheritance tax rules and neither income tax or capital gains tax are relevant. If the cash gift becomes tainted or related to employment, only then do income tax and capital gains tax enter the fray.
How much tax there is to pay on a cash gift depends entirely on who you are giving cash to, how much you are giving them and why you are giving it to them.
What counts as a Gift?
From an HMRC perspective a gift can be made up of money, possessions or property. A loss in value to the giver when something tangible is gifted to another person can also be treated as a gift.
Who can receive a cash gift, tax free?
Married or Civil Partners can usually give each other cash gifts without any tax charge, provided they both live permanently in the UK. Gifts can be given freely to political parties and any registered charity without limitations. You are also permitted to make tax free gifts to help cover the living costs of another person, for example an elderly relative who can no longer provide for themselves. There is an annual exemption for cash gifts, a small gifts exemption, exceptions for gifts due to wedding and an exemption for regular gifts out of surplus income.
What about gifts made outside of the exemptions?
If the gift exceeds the exemptions then it is usually subject to inheritance tax (“IHT”). There are some exceptions to this. Some gifts are designated Potentially Exempt Transfers (PET’s) which means they will become exempt from inheritance tax if the individual survives for a period of more than 7 years.
Would inheritance tax apply to me if I have received a cash gift?
Inheritance Tax is a tax on the value of a person’s estate. If they are gifting cash, they are seen to be decreasing the value of their estate.
If you receive a cash gift from someone and they pass away, the estate may be subject to an inheritance tax charge. However, there is a 7 year sliding scale rule which decreases the tax charge with the gift being exempt from inheritance tax only after the 7 year anniversary date has passed.
Can Moorgate give me personal advice on my cash gift?
It is clear that there is no such thing as a “standard” cash gift. Our tax team would be happy to help with any questions you may have on cash gifts you have received or would like to make. We’ll make sure you are aware of the legislation involved and understand the tax implications which will help you make an informed choice about how to proceed.
Please call our Oxted office on 01883 730044 to make an appointment to talk to one of our Tax Managers, James or Adam.
Caveat
This article is for general information only and is not to be relied on by the reader. No liability is accepted for information contained in this article. Seek professional advice relating to your specific circumstances.