Receiving money from a family member can be a welcome source of financial support, but many people are unsure whether they need to pay tax on it. In most cases, the person receiving a gift does not pay Income Tax on money given by family. However, the gift could have Inheritance Tax implications for the person making the gift.
Inheritance Tax may become an issue if the person giving the money dies within seven years of making the gift. Gifts made during this period may be included when calculating the value of their estate, depending on the amount given, who received it and when it was made.
Gifts can include money, property, land, personal possessions and shares. If someone sells an asset to a family member for less than its market value, the difference may also count as a gift.
There are several exemptions and allowances that allow people to give money without it becoming liable for Inheritance Tax. Each tax year, an individual can give away up to £3,000 known as the annual exemption. They can also make unlimited gifts of up to £250 per person, provided another exemption has not been used for the same recipient.
Certain wedding gifts are also exempt, including gifts of up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, and £1,000 to other individuals.
Regular financial support may also be exempt if it is paid from normal income and the person giving the money can still afford their usual living costs. This could include helping with rent, supporting an elderly relative or contributing into a savings account for a child under 18.
Anyone making significant gifts should ensure they keep records showing what was given, to whom, the value and the date of the gift as this may have Inheritance Tax implications in the future.