Do you need to pay tax for gifts you received?
Receiving a gift is not always tax-free.
The basic rule is this:
- if the person giving you the gift passes away within 7 years, you might need to pay Inheritance Tax (but not always, read below)
- If you’re receiving an asset that has increased in value since the person giving it to you bought it, then they’ll also need to pay Capital Gains Tax when they’re giving it to you. This is usually the case with property.
What counts as a gift?
Anything that has value:
- a car
- but also a loss in value: if your parents own a flat worth £250,000 and they sell it to you for a “special price” of £150,000, the £100,000 they lose on the sale actually counts as a gift – you might need to pay tax on it.
How much can I receive tax-free?
- most other people can give £3,000 tax-free each tax year
- some wedding gifts from your family
- any gift worth £250 or less – this doesn’t count if you already received someone’s full £3,000 annual gift exemption
- or cash that’s supposed to help cover your living costs, if you’re old, child, or an ex-spouse.
Also, some gifts are completely inheritance tax-free:
- any amount (doesn’t matter how big) if they’re your spouse or civil partner
- any gift as long as the person giving it to you (doesn’t matter who they are) lives for another 7 years after gifting it.
How much do I need to pay?
If you need to pay, the Inheritance Tax rate is a flat 40%.
How do I pay the tax on gifts?
When your benefactor passes away, their lawyer or some other person they entrusted will do it for you.