Gifts and Inheritance Tax/Self Assessment Tax

[gmc]

I was wondering if someone could clarify an IHT query I have regarding gifts.

I don't have any immediate family (ie wife or children) but my question relates to gifts I am allowed to give to other people.

If for example I give a family friend (but no direct relation) £10,000 does my friend have to put the gift on their normal tax return?

If I live longer than 7 years after the gift is given is this money just ignored for IHT purposes? I assume if I was to die the pro-rated amount would go back into the value of the estate.

Is there a limit on the amount I could give away?

Thanks

[pqtaxation]

Gifts to another person (the donee) are not liable to income tax on the donee and so are not included on donee’s tax return.

Such gifts are potentially exempt transfers (PET) from your estate with no IHT payable at time of gift.

You can give away everything if you wish.

On your death the amount of IHT payable depends on the value (and its composition as some types of assets are relievable from IHT) of your death estate, who benefits (some beneficiaries such as spouse/civil partners and charities are exempt beneficiaries)and value of such gifts made within seven years of your death.

You have a £3,000 per year annual exemption which if you have not used can be carried forward one year. So if you want to gift £10,000 to a friend now and have not used last year’s annual exemption then £6,000 is exempt (2 *£3000) and £4,000 is PET (£10,000-£6,000 exemption).

HMRC website covers this area of smallish gifts at:
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

[gmc]

Thank you for the information.

[dedalus]

If A gifts 50k cash to B, does B need to pay income tax?

If the answer is no should there be a document drafted to record the gift in case HMRC are sniffing on the 50k sitting somewhere?

thanks