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No matter what it is, receiving a gift is always a lovely, thoughtful gesture! If you’re lucky enough to receive a gift of high value, the down side is that there are some tax implications to consider.
Here are the basic rules:
Anything that you are given that has value is classed as a gift, i.e:
In the case of a capital loss, you may still be subject to tax.
Your parents own a flat worth £250,000 and they generously 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 may still have to pay estate tax on this.
On the bright side, some gifts are completely exempt from inheritance tax:
Inheritance Tax has a flat rate of 40% which certainly makes things a little less confusing if you do need to pay. Find out more about how this rate is calculated here.
If you receive a gift three or more years before the gifters death, consider yourself lucky as you will be entitled to taper relief which is calculated depending on the number of years between the gift and death:
|Years between gift and death||Rate of tax on the gift|
|3 to 4 years||32%|
|4 to 5 years||24%|
|5 to 6 years||16%|
|6 to 7 years||8%|
|7 or more||0%|
When your benefactor passes away, their lawyer or an entrustee will usually sort the desk work out for you. You can also give HMRC a call for information and guidance on paying tax on your gift(s).
Bear in mind that there is a 6-month deadline to pay inheritance tax.
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