Interactive Investor

How much cash can I give my sons without them paying tax?

12th February 2015 16:42

Patrick Connolly from interactive investor

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Q

“I want to give a cash gift to my three sons. What is the maximum amount I can gift them without them incurring tax?”

From: JG/Swansea

A

If you're planning to give a cash gift to your sons, there is nothing to stop you giving whatever amount you want.

From a tax perspective, as long as you aren't encashing investments where there is a capital gain or some other tax consequence, then the only consideration is a potential inheritance tax liability on the money you gift.

You can gift up to £3,000 a year and it is exempt from inheritance tax, or £6,000 if you did not make a gift of this kind in the previous tax year.

A married couple giving for the first time could, therefore, hand over £12,000 in one year. After that, the maximum for a couple is £6,000 each year.

You can also give £250 to any number of people every year but you cannot combine it with your annual £3,000 exemption. Parents can give £5,000 to each of their children as a gift in contemplation of a wedding or civil partnership. Grandparents can give £2,500 and anyone else £1,000.

If gifts are intended to be made on a regular basis, come out of income, and do not affect your standard of living, they can be ignored for inheritance tax purpose regardless of size. For those with larger incomes, this can make a significant difference to their potential inheritance tax liability.

It is possible to make further inheritance tax-free gifts, known as potentially exempt transfers. You need to survive for seven years after making the gift for it to be free of inheritance tax, with the potential tax payable reducing from year three onwards.

You can give away most assets, including cash and shares. However, it has to be an outright gift from which you can no longer benefit. If you wish to retain a degree of control, consider gifting assets into a trust arrangement.

This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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