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Do you need to pay tax for gifts you received?

  • 3 min read
  • Last updated 20 Sep 2022

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:

  • If the person gifting you passes away within 7 years, you may need to pay Inheritance Tax (but this isn’t always the case, continue reading)
  • If you’re receiving an asset that has increased in value since the person giving it to you bought it, then they’ll usually need to pay Capital Gains Tax when they’re giving it to you

What counts as a gift?

Anything that you are given that has value is classed as a gift, i.e:

  • Large sums of money
  • Cars
  • Fine jewellery
  • Property
  • Art

In the case of a capital loss, you may still be subject to tax.

Example:

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.

How much can I receive tax-free?

  • Cash gifts of up to £3,000 each tax year
  • Some wedding gifts from your family
  • Any gift worth £250 or less – however, this doesn’t count if you’ve already received hit the full £3,000 annual exemption
  • Money to help cover your living costs if you’re old, a child, or an ex-spouse

On the bright side, some gifts are completely exempt from inheritance tax:

  • You won’t have to pay tax on any gift from your spouse or civil partner – so no, you won’t have to spend the day after your birthday on the phone to HMRC!
  • Any gift from any person, as long as that person lives for another 7 years after gifting it to you

How much do I need to pay?

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.

How do I pay the tax on gifts?

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 deathRate of tax on the gift
3 to 4 years32%
4 to 5 years24%
5 to 6 years16%
6 to 7 years8%
7 or more0%

How do I pay the tax on gifts?

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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