Are cash gifts taxable?

As we get older, if we’ve worked hard and done alright for ourselves, naturally, we might want to gift a reasonable wodge of cash to a loved one. Often, people want to help a son, daughter or grandchild to go to university, go travelling, buy a car, start a business, get married or put down a deposit on a first house.

The “Bank of Mum and Dad” remains a crucial source of funding, but there are a few tax rules that you and your loved ones should be aware of before you go gifting them large amounts of your hard-earned dosh.

Cash gifts and Income Tax

• There are no potential income tax implications for the person to whom you gift cash – unless they put it into a savings account and it generates taxable interest or they buy shares from which they receive taxable dividend payments.
• Dividend payments are subject to Income Tax once they go over the threshold (£500 for the 2024/25 tax year), while interest can be taxable once the recipient’s total income exceeds their tax-free Personal Allowance (£12,570 for 2024/25).
• There is no need for them to report the cash gift itself via Self Assessment, but they will need to fill out and file a Self Assessment tax return if there is tax to pay.
• If the interest comes from a bank outside of the UK, it’s classed as foreign interest, which is taxable in the UK if the recipient is resident for tax purposes here. They must report it using supplementary pages SA106.

Need to know! There is no tax to pay if you gift money to your UK-based spouse or civil partner, as long as you are together or were together when the gift was given. 

Cash gifts and Capital Gains Tax

Cash gifts are not covered by Capital Gains Tax, but personal possessions and assets may be if they’re sold or given away and they’re above a certain value.

No Capital Gains Tax is payable on assets you give or sell to your spouse or civil partner if you are still together or were still together in the tax year when the gift was given or asset sold.

You cannot give them goods for their business to sell. Your spouse or civil partner may have to pay tax on any gain if they later dispose of the asset.

Cash gifts and Inheritance Tax

Money from your estate is used to pay any Inheritance Tax that’s due. The executor of your will (ie the person dealing with your estate) is responsible for this. Those who inherit your estate (ie the beneficiaries) don’t normally pay tax on things they inherit, unless, for example, you leave them a house in your will from which they later earn taxable rental income. 

Inheritance Tax may be payable after your death on some gifts you’ve given to family members. Gifts given less than seven years before your death may be taxed depending on who you give the gift to and how you’re related, as well as the gift’s value and when you gave it to them.

Gifts can be money, household and personal items (eg furniture, jewellery or antiques), a house, land or buildings, stocks and shares listed on the London Stock Exchange or unlisted shares you held for less than two years before you died. A gift can also include any money you lose when you sell something for a low price (eg if you sell your house to your son or daughter for less than its market value).

Need to know! No Inheritance Tax is payable on gifts between spouses or civil partners.

Inheritance tax: the annual exemption

• Thanks to the “annual exemption”, each year you can give away gifts (including cash) worth £3,000 in total, to one or more people (eg £1,500 each to two people or £1,000 each to three). These are not added to the value of your estate on your death and no Inheritance Tax is due.
• The annual exemption can be carried forward, but only for one year, so, if you don’t use it – you lose it.

Inheritance tax: the seven-year rule

• No tax is payable on gifts you give if you live for seven years after giving them (unless they’re part of a trust).
• If you die within seven years of giving a gift and Inheritance Tax is payable, gifts given in the three years before your death are taxed at 40%, while gifts given three to seven years before your death are taxed on a sliding scale known as “taper relief” (32% three to four years; 24% four to five years; 16% five to six years; 8% six to seven years).
• Taper relief only applies if the total value of gifts made in the seven years before you die exceeds the £325,000 tax-free threshold (2024/25 tax year).

Small gift allowance

Each tax year, you can give as many gifts of up to £250 per person as you wish, as long as you have not used another allowance on the same person. Birthday or Christmas gifts you give from your regular income aren’t subject to Inheritance Tax.

Gifts for weddings or civil partnerships

Each tax year, you may give a tax-free gift to someone who is getting married or starting a civil partnership as follows:

• £5,000 to your son or daughter
• £2,500 to a grandchild or great-grandchild
• £1,000 to any other person.

If you’re giving gifts to the same person, you can combine a wedding gift allowance with any other allowance (eg annual exemption), but not the small gift allowance.

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.