What counts as a gift and how HMRC treats it

The rules involved can be complicated, however. The exemptions available to you will be dependent not only on the type of gift you give, but also on the circumstances in which it is given. 

Whether you can afford to gift at all considering your potential retirement income goals and other concerns will need to be factored in. An adviser could help you determine how much you may be able to gift, while also considering other IHT strategies. 

But by gifting your wealth strategically, early, and in a way which works for your specific circumstances, you may be able to ensure more of your estate ends up in the hands of your family members, and not the state. 

As such, it’s worth knowing what HMRC considers a gift, and how those gifts are treated. 

Officially, gifts include:

• Money 
• Household and personal goods, such as furniture, jewellery or antiques
• A house, land or buildings
• Stocks and shares listed on the London Stock Exchange
• Unlisted shares you held for less than two years before your death

There are also certain less obvious gifts that can be counted. A gift can include any money you lose when you sell something for less than it’s worth. So, for example, if you sell your house to your child for less than its market value, the difference in value counts as a gift.

Some gifts can be exempt from IHT, making them useful tools for financial planning. There is no IHT to pay on gifts between spouses, meaning you could give as much as you’d like to your partner during your lifetime and not face a charge. 

This is the case so long as your spouse lives permanently in the UK, and is legally married or in a civil partnership with you. Also, there is no IHT to pay on gifts given to charities or political parties. 

But some gifts made during your lifetime may still be hit by IHT after your death. Gifts given within seven years of your death may be subject to inheritance tax, depending on their value, who received them, and whether available exemptions apply. 

This is known as the seven-year rule, and it is applied on a tapered scale. Taxable gifts given in the three years before your death are taxed at 40%. Beyond this, taper relief comes into play as follows: 

While gifts between partners and the seven-year rule are likely to be the main considerations when it comes to inheritance plans, there are other elements that could also be factored in. 

Currently, you can give away up to £3,000 worth of gifts every tax year without them being added to the value of your estate. This can be given to one person or split among many. You can also carry any unused annual exemption forward to the next year, but only for one tax year. 

It’s also possible to give an unlimited number of gifts up to £250 per person each tax year, so long as another allowance has not been used on the same person. Furthermore, birthday or Christmas gifts given from your regular income are exempt from IHT. 

Wedding gifts are also free from inheritance tax, within limits. You can give up to £5,000 to your children, £2,500 to a grandchild or great-grandchild, or £1,000 to anyone else. A wedding gift allowance can be combined with other gift allowances, except the small gifts exemption. So, you can give your child a wedding gift of £5,000, and £3,000 using your annual exemption in the same year.

Navigating gifting and IHT rules can be complex, so taking financial advice could be beneficial. Our advisers could help you with all these gifting concerns, as well as the more niche areas that may catch you off guard such as gifts out of income exemption rules, record keeping, and how the residential nil rate band can come into play. 

You can book a free, no obligation call with one of our team today. There are no hidden fees or charges, and you’ll only pay if you choose to go ahead with the recommendations in your personalised financial plan.

Gifting, when done properly, could benefit your family greatly, and make sure more of your estate goes to your intended beneficiaries.

This article is for information purposes only. It is not intended as financial advice.

Fees, charges and eligibility criteria apply.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. 

Any views expressed are our in-house views at the time of publishing. This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.