How much money are you legally allowed to give someone as a gift?
You can legally gift as much money as you like to any person or organisation. However, there are tax implications, depending upon how much, how often and whom you are giving it to. Often people like to give their money away during their later years, rather than leaving it in a will.
They get the benefit of seeing their money go to their loved ones, or to a deserving cause. Years ago it was also a way of avoiding Inheritance Tax, but those days have gone.
When a deceased person's estate (the total of all their property, valuables and money) is assessed, Inheritance Tax is levied at the current rate and deducted from the estate before distribution.
There is a threshold below which tax is not applicable, similar to the Personal Allowance on income. This means that most estates are exempt -- check HMRC for the current level. However, Inheritance Tax is also levied on gifts given while the donor is still alive.
Recipients who are exempt from Inheritance Tax
You can give any amount to your spouse or civil partner, but they must be UK citizens.
However, if your partnership is unregistered, tax will be applied. In other words, even if you have lived with your partner for 50 years, your gift may still be subject to tax.
Charities registered in the UK are exempt from having to pay tax on a gift of money. There are certain other organisations, such as The National Trust and universities, that are also exempt. You can make a tax-free donation to a political party, as long as it has a minimum of two elected Members of Parliament at the time of the gift.
The seven year exemption
If you live for seven years after giving a gift of money, then it will be free of Inheritance Tax.
If you die within the seven years, the amount is considered to be part of your estate and subject to inclusion. The beneficiary would then be liable to pay the tax due. In essence, this is like making a wager -- you can take the chance that you will survive for the seven years and give as much as you like. The beneficiary would do well to keep detailed records and put a portion of the gift aside to cover Inheritance Tax "just in case."
Gifts exempt from Inheritance Tax
You can give up to £3,000 in any one year, free of potential Inheritance Tax liability. You can carry unused portions over for one year only.
You can give up to £5,000 to your son or daughter as a wedding or civil partnership gift. Grandparents can give £2,500. You can make as many small gifts of £250 as you like.
Gifts of money are not subject to Income Tax, as they are not work or benefit related. However, if the gift is deemed to be part of an exchange, i.e. time or labour, it is no longer classed as a gift and becomes subject to normal Income Tax regulations.