Do You Pay Tax on Money Received from Family?

Do You Need to Pay Tax on Money Received from Family?

Receiving money from a parent, grandparent or another family member can provide valuable financial support, whether it's helping with a house deposit, covering living costs or contributing towards future savings. A common question we hear is: do you have to pay tax on money gifted by family members?

The good news is that, in most cases, the person receiving a gift does not pay Income Tax on money given by a family member. However, there can be Inheritance Tax (IHT) implications for the person making the gift, making it important to understand the rules before significant sums change hands.

Is Money Gifted by Family Taxable?

Generally, money gifted by a family member is not considered income, so the recipient will not have to pay Income Tax on it.

However, gifts can become relevant when the donor's estate is assessed for Inheritance Tax. If the person making the gift dies within seven years of giving it away, the gift may need to be taken into account when calculating the value of their estate.

This is often referred to as the seven-year rule, although the exact tax treatment can depend on the size of the gift, when it was made and who received it.

What Counts as a Gift?

For Inheritance Tax purposes, gifts are not limited to cash. A gift may include:

• Money
• Property or land
• Shares and investments
• Valuable possessions
• Assets sold for less than their true market value

For example, if a parent sells a property to a child at a substantial discount, the difference between the market value and the sale price could be treated as a gift.

Inheritance Tax Gift Allowances

There are several valuable exemptions that allow individuals to pass wealth to family members without creating an immediate Inheritance Tax liability.

Annual Gift Allowance

Each individual can give away up to £3,000 per tax year under the annual exemption. If the exemption is unused, it can generally be carried forward one tax year.

Small Gifts Exemption

Individuals can give up to £250 per person per tax year to as many people as they wish, provided no other exemption has been used for the same recipient.

Wedding and Civil Partnership Gifts

Certain gifts made in connection with a wedding or civil partnership are exempt:

• 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

Many people are unaware that regular gifts may also be exempt where they are made from surplus income rather than capital.

Examples could include:

• Helping an adult child with rent or mortgage payments
• Paying into a grandchild's savings account
• Supporting an elderly relative

To qualify, the gifts must form part of the donor's normal expenditure and leave them with sufficient income to maintain their usual standard of living.

Keep Good Records

If you are making substantial gifts, it is essential to keep accurate records. This should include:

• What was given
• Who received it
• The value of the gift
• The date it was made

Good record-keeping can make a significant difference if Inheritance Tax needs to be calculated in the future and can help avoid unnecessary complications for your family.

Planning Ahead

Gifting can be an effective way to support loved ones and reduce the value of an estate over time, but the rules can be more complex than many people realise. Careful planning is particularly important where larger sums, property transfers or long-term wealth preservation are involved.

At Charlton Baker, our tax planning and estate planning specialists help individuals and families structure their affairs efficiently, ensuring they make the most of available exemptions while remaining compliant with HMRC requirements. Give our expert team a call today on 01380 723692 or email them here.