I always think people either have more or less money than they think they need. My job is to help them plan to get to the other side, whichever side of the fence they are currently on.
If you have more money than you need then it is likely you want to give some away to your children for example in the form of a gift. However many people are rightly conscious of the tax implications of doing so.
Being liable for unexpected tax made on gifts to your children and grandchildren is easily done.
If the money that you pass on to your child(ren) generates income of more than £100 per year, per parent, per child then this is deemed to be your income and will be taxed as yours. This is to avoid wealthy parents putting their savings in the name(s) of their child(ren) to avoid income tax on savings.
You may pass on gifts worth up to £3,000 each and every year free of inheritance tax concerns. This is known as the ‘annual exemption’. The inheritance tax rules also allow you to make higher levels of gifts at weddings – parents can gift £5,000 free of inheritance tax.
You may also gift on a regular basis out of normal income, so long as this does not affect your own standard of living. These too are free from inheritance tax.
In reality you may gift as much as you like in whatever form you like. The value of this gift would fall outside of your estate after seven years. Were you to pass away within seven years of making the gift though, all or part of the value of the gift would fall back inside your estate and become liable to inheritance tax.
Capital Gains Tax
If you make a gift of assets then it is important to know that it will be considered a disposal for Capital Gains Tax purposes and taxed accordingly. You do not have to have sold the asset before gifting it. For example, just changing the name of the owner of the asset e.g. on a property, will be considered a disposal for tax purposes and so the person transferring or gifting the asset will become liable to Capital Gains Tax.