Giving money to family members is common and happens for a number of different reasons.
Perhaps you are a grandparent looking to fund your grandchild’s uni education or help them put down a deposit for a mortgage. Or maybe a family member has financial difficulties and you are in a position to help. Maybe you have landed a windfall and want to gift cash to family members to spend as they wish. Whatever the reason, you might be wondering how much money you can give to family tax-free.
Well, here’s everything you need to know.
Can you give money to family tax-free?
The simple answer to this question is yes. However, this is dependent on who the money is going to, how much you are giving, when you are giving it and sometimes even the reason for giving it. By understanding these factors, it is actually possible to give money to family members completely tax-free.
How much money can you give to family tax-free?
There are several scenarios in which you can give money to family members tax-free.
First, any money you give to your spouse or civil partner is tax-free, regardless of the amount. This applies to money given while alive and any inherited after death. It is worth noting that merely cohabiting does not qualify you for this particular tax exemption. You must be legally married or have a legally recognised civil partnership with a partner.
You can also give away a maximum of £3,000 tax-free to any family member every year. This is your annual exemption as a citizen of the UK. You can carry the annual £3,000 exemption forward to the next year, but not further than that. This means that you may, at most, have £6,000 of annual exemption available for use in any one year.
A potentially exempt transfer (PET) also allows you to give money to family tax-free. This is a lifetime transfer that remains exempt from tax if the person transferring the money survives for more than seven years after making the transfer. If they die within those seven years, the gift becomes liable to inheritance tax.
However, only the amount above the nil rate band (which is currently £325,000) will be taxed. If you plan on giving money to a family member to reduce inheritance tax, it is therefore useful to keep a record of the amount you gave, who you gave it to, and when you gave it. With this, the executor of your estate can easily work out the amount that is liable to tax.
Additionally, small gifts of up to £250 per year are exempt from inheritance tax. You can, therefore, give as many gifts as long as they do not exceed £250 each and are given to different family members.
However, you cannot mix and match the small gift allowance with other exemptions such as the £3,000 annual exemption. For example, suppose you gift a family member £3,250. You cannot claim that the whole amount is tax-free as the annual exemption covers the first £3,000 while the remaining £250 is covered by the small gift allowance exemption. The additional £250 will be taxed.
How else can you give money to family tax-free?
Every tax year, you can also give money tax-free in the following situations:
- A wedding or civil ceremony cash gift of up to £1,000 per person (parents can gift as much as £5,000 to their child, while grandparents and great-grandparents can gift up to £2,500).
- A normal cash gift, such as a birthday present, out of your income (as long as you are able to maintain your current standard of living after giving the gift).
- A payment to assist with a family member’s living costs (e.g. an elderly relative or a child under 18 years old).
Before giving money to family, it is useful to go through the rules carefully. Understanding these rules can help you determine how to best give money to family without losing a significant chunk of it to tax.
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