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We often come across clients who inquire about what they can donate or offer to loved ones and relatives as well as the tax implications in that cases. In this article, we will present three common questions about this topic hoping to clarify the situation.
➲ Do you pay tax for all kinds of donations and gifts?
➲ What can be classified as a gift/donation?
➲ What tax you have to pay for gift /donations?
Do you pay tax for all kinds of donations and gifts?
Of course not. The tax system in England is fair enough.
Exceptions:
Annual exemption: The limit of not taxable cash is £3,000 /year
Small gifts exempt: Additional gifts worth of £250/year, for instance, for Christmas or birthdays
Donations to spouses/partners: Is not taxable for spouse or partner living permanently in the UK
Wedding gifts: From wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
Charity and political parties: When you donate money to registered charity organisations and political parties in England, you do not have to pay tax
IMPORTANT: In general, the persons you make a donation to, will have to pay Inheritance Tax if they receive more than £325,000 within 7 years before your death (for details, see the table below). If the donation is less than £325,000, the donation is not taxable, and the 7 years rule does not apply. The amount of £325,000 is considered as “Inheritance Tax Threshold” and applies not only when calculating money but also property. However, the HMRC must be notified about donations are made though an official declaration.
What can be classified as a gift/donation?
A gift can be:
anything that has a value, such as money, property, possessions
a loss in value when something’s transferred, for example if you sell your house to your child for less than it’s worth, the difference in value counts as a gift
For further questions, please contact the Inheritance Tax Helpline.
What tax you have to pay for gift/donations?
Everything counts based mostly on the rule of 7 years. This means that there is no tax if the individual making the donation does not die in the next 7 years after the donation and the tax applies for the value/money above the Inheritance Tax Threshold mentioned above.
Briefly, the table with rates:
Example:
A woman died on 1 July 2020 and was not married or in civil partnership. She left3 gifts within 7 years from her death:
- £300,000 to her brother, 6.5 years prior to her death
- £50,000 to her sister, 4.5 years prior to her death
- £150,000 to her friend, 3.5 years prior to her death
The woman is not eligible for any other exemptions.
The limit for not taxable inheritance is £325,000, thus anything below this amount is not taxable.
£300,000 was used by her brother so no tax is paid for this.
The rest £25,000 are used from the gift of £50,000 to her sister. There is tax for the amount that is not covered from the limit and this means that there is 24% tax to be paid for the £25,000 she gave to her sister.
The gift of £150,000 she gave to her friend is taxable and there is 32% tax to be paid.
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Translated / Edited by, Apostolia Nestoratou
© 2020 UPECO LTD
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ATTENTION!
This article intends to give only a general informative picture and should not, in any case, be taken as a rule. It is strongly recommended to seek a full and professional guidance specifically for your circumstances before making any decisions.