Giving Money: 3 things to know!

1st June 2021

Giving money is commonplace in the UK, whether it’s a parent giving a child pocket money, money being given in a birthday card, or a friend helping out a friend in need. For small amounts like this you’re likely to not have any questions about it, but what about a giving a larger amount of money?

Shepherds Friendly have answered three need to know questions many may face when receiving or giving money.

  1. Is gifted money considered income?

In short, the answer is NO a cash gift is not considered income by HMRC. Meaning you are free to gift cash assets or valuable belongings without it counting as a form of income.

An alternative to giving money is setting up a Junior ISA or Sustainable Junior ISA for your child, allowing you to regularly pay into their plan each month from just £30 or £10, respectively. Alternatively, if you want to save for a niece/nephew, grandchild or a friend’s child, you can open a Junior Money Maker account for them from £100 a month with parental consent.

2. Is giving money taxable?

If you’re planning on giving a small cash gift for a birthday or Christmas, you likely won’t have to worry about paying any tax for it, as you can give as many small gifts worth up to £250 throughout the year.

For larger amounts, you can give away gifts worth up to £3,000 every tax year without having to pay any tax on it. This is known as your “annual exemption”. If you don’t use all of this amount in one year you can carry it over to the next tax year, but only for one year.

On top of this £3,000 limit, you can also give away:

  • The previously mentioned small gifts worth up to £250.
  • A wedding gift (or money) worth up to £1,000 per person. However, for if the gift is for a grandchild, they can receive £2,500 tax free and £5,000 for a child.
  • Gifts/money to charities or political parties.
  • Payments to help with living costs.

The people you are giving gifts or money to will only be charged Inheritance Tax if you give away more than £325,000 in the 7 years before your death. For more information on inheritance tax, check out our guide: everything you need to know about inheritance tax.

3. How does giving money work for mortgages?

In the current housing market, family members gifting money towards a deposit, or the whole thing is becoming more and more common for first time buyers.

If you are planning on giving money for a family member you will usually have to confirm the following when getting a mortgage:

  • The amount gifted.
  • The source of the funds (within the UK, within the EU, or outside of the EU).
  • Your relationship to the applicant.
  • A signed declaration that you won’t have any financial interest in the property.
  • A signed declaration that if the money is loaned it will only need to be repaid when the property is sold.
  • Photo identification and proof of address.

If you’re wondering how tax could affect your gift, you will have your £3,000 annual exemption limit. So, depending on how much you used of your previous years limit you could gift anywhere between £3,000 to £6,000, or £6,000 to £12,000 if you’re gifting the money to a couple.

For more information on giving money, take a look at the following guides. The rules of gifting money to children, what are the rules for gifting money to family members? And gifting money to grandchildren: A how to guide.

Sources:

https://www.gov.uk/inheritance-tax/gifts

https://www.which.co.uk/news/2020/12/bank-of-mum-and-dad-how-to-gift-money-to-your-child-for-a-house-deposit/