Do you need to pay tax on money received from family?
Receiving money from a relative can offer welcome financial support. Nevertheless, many people feel unsure about the tax rules. So, do you need to pay tax on money received from family? Usually, the answer brings good news. In most cases, you do not pay Income Tax on gifts from family. However, the gift could still affect the person giving it.
Why Inheritance Tax can apply
Although the recipient rarely pays tax, Inheritance Tax may still become relevant. Specifically, problems can arise if the giver dies within seven years. In that case, the gift may count towards their estate. Furthermore, the outcome depends on several factors, including:
- The amount given
- Who received the money
- When the gift was made
What counts as a gift
Importantly, gifts cover more than simple cash payments. Indeed, they can include:
- Money
- Property and land
- Personal possessions
- Shares
Moreover, selling an asset cheaply can also count. If you sell below market value, the difference may become a gift.
Exemptions and allowances
Fortunately, several exemptions help people give money safely. For example, you can give away £3,000 each tax year. This useful allowance is called the annual exemption. Additionally, you can make unlimited gifts of up to £250 per person. However, you cannot combine this with another exemption for the same recipient.
Certain wedding gifts also escape Inheritance Tax. Therefore, you may give:
- Up to £5,000 to a child
- Up to £2,500 to a grandchild or great-grandchild
- Up to £1,000 to anyone else
Regular gifts from income
Regular support may also qualify for exemption. However, you must pay it from normal income. In addition, you must still afford your usual living costs. For instance, you might help with rent, support an elderly relative, or pay into a child’s savings account.
Keep clear records
Finally, always keep careful records of significant gifts. Specifically, note what you gave, to whom, the value and the date. Consequently, these details help greatly with future Inheritance Tax calculations.
Talk to us today
So, do you need to pay tax on money received from family? Often, the rules feel more complex than expected. Therefore, please get in touch today. We would happily review your gifts and guide you clearly.
