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What are the Rules When Gifting Assets?

Although it can sound morbid, you will hear many people claim ‘well, I can’t take it with me’ when gifting money and other assets. However, giving money and assets away is harder than first assumed and there are some legal pitfalls.

What counts as a gift?

Money, property and possessions all count as gifts. However, anything, where there is a loss in value of an item, is also considered a gift. Therefore, selling your car or property for less that it’s worth as a way of helping a friend or family out would be considered a gift.

Gifts under £250

You can give as many gifts under £250 as you like within a tax year. These gifts may be physical items or cash.

Inheritance Tax

If you gift more than £325,000 in the seven years leading up to your passing, the recipient will be charged Inheritance Tax. The tax charge will sit on a sliding scale, known as a taper relief.

Years between gift and death

Tax charge

< 3 years

40%

3 to 4 years

32%

4 to 5 years

24%

5 to 6 years

16%

6 to 7 years

8%

> 7+ years

0%

Exempted gifts

There is a £3,000 limit on the cash amount of gifts you can give each tax year without them being added to the value of your estate. This limit is £3,000 and is often referred to as your annual exemption. You can carry any remaining annual exemption forward to the next year.

Along with you the £3,000 limit you can also give away the follow (tax free) every year:

  • £1,000 in wedding gifts per individual
    • £2,500 for a grandchild
    • £5,000 for a great-grandchild
  • Normal gifts out of your income
  • Gifts to charities and political parties
  • Payments to help with another person’s living costs

The values and gifts above are as well as the £3,000 tax exemption limit.

The downsides to gifting assets

Whilst gifting cash, property and other assets to your loved ones is an incredibly kind gesture, be careful to avoid any of the following pitfalls:

  • Gifting an asset is permanent and you cannot go back on it.
  • You may loose financial security giving away large assets that you may have needed to use in the future.
  • Reducing assets could leave you financially vulnerable and limit your future choices.
  • Situations and relationships change so make sure you are 100% about the gift and the individual.
  • If you or the person you have gifted makes a profit from a gifted asset you could be liable for Capital Gains Tax.

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Disclaimer
The contents of this article are for reference purposes only and do not constitute financial or legal advice. Independent financial or legal advice should be sought in relation to any specific matter. Articles are published by us without any knowledge or notice of the circumstances in which you or anyone else may use or rely on articles or any copy of the information, guidance or documents obtained from articles. We operate and publish articles without undertaking or accepting any duty of care or responsibility for articles or their contents, services or facilities. You undertake to rely on them entirely at your own risk, and without recourse to us. No assurance of the quality of articles is given or undertaken (whether as to the accuracy, completeness, fitness for any purpose, conformance to any description or sample, or otherwise), or as to the timeliness of the publication.
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