The rules for the monetary exchange of gifts are separate for residents based in the UK and non-UK residents. Through this blog post, we aim to learn whether a UK resident has to pay tax on gift money that they have received from a non-UK resident. To have an in-depth understanding of how a gift of money is taxed in the UK, we will discuss the details of taxes that are applied to gift money in the UK as well as review the types of tax-free gifts. 

Do I Have To Pay Tax On Receiving Gift Money From Abroad In The UK?

No, you do not have to pay tax on receiving money from abroad if you live in the UK and the sender lives in another country.

When a UK resident receives a gift of money from a non-UK resident, the transaction is not treated in the same manner as would be in the case of both the sender and receiver being UK residents. There are no tax implications in such a case and the transaction would rather be considered as a transfer of capital. Currently, there is no tax on the transfer of capital from abroad to UK residents. Therefore there is no income tax or capital gains tax that may be implied in such cases.

However, if UK residents receive a sum of gift money from abroad that they deposit in their bank accounts with the purpose of generating income through interest, that income will be taxable.

If a UK resident receives gift money from another UK resident, the nature, sum and the donor’s personal conditions will play an important role in determining whether or not the amount can be considered tax-free.

Gifts between UK citizens that are tax-free include the following:

  • Everyday gifts on occasions such as birthdays, anniversaries, graduation etc that do not reduce your standard of living once you’ve gifted them.
  • You can gift money or items valued at £250 or less with an annual allowance of £3,000 for family members.
  • Parents can gift their children wedding gifts amounting to £5,000, grandparents can gift up to £2,500; while friends and family can gift up to £1,000.
  • Gift money to help anyone younger than 18 years of age or who is elderly so that they may be able to meet their living costs
  • Charity and donations made to institutions.

Does A Gift Of Money Affect Your Benefits?

No, a one time gift of money or small amounts of it at varying intervals will not affect your benefits. Additionally, the amount of money that you may receive from friends, family or charitable sources are not included in the means test for benefits.

However, should you incur regular/periodic payments from friends, family or charity, these will be added under the “savings” section for your benefit claim. This is applicable if you receive large amounts of gift money and your total savings exceed £6,000.

Monetary gifts in the form of an annuity are considered as an income and will bear an impact on your benefits claim. However, voluntary payments from a former partner or parent of a child are not considered a gift of money.

When a means test is carried out for benefits claim, the following types of income are taken into account for benefits claim and that too for income-based benefits:

  • Cash
  • Stocks and shares
  • Savings
  • Assets
  • Investments (rent, dividend, interest)
  • Unearned income (pension payments, student income)

Can I Gift 100k To Avoid Inheritance Tax?

While, you can gift £100,000 to an immediate family member; however, there are conditions under which inheritance tax will be applicable. 

The annual amount of tax-free gift money in the UK is £3,000. This means if you gift this sum of money to your family members (usually children and grandchildren) there will be no inheritance tax due on it.  

In case of a monetary gift that sums to £100,000, out of this the amount of £3,000 will be considered as a tax-free gift allowance while the remaining £97,000 will be classified as a potentially exempt transfer. 

However, should the person who has gifted this amount dies within a period of 7 years after transferring the amount, it will be counted towards their estate to calculate the amount of inheritance tax. The beneficiaries will not be expected to return the amount as it will only be considered for assessment purposes.

What Counts As Gifts?

The following items are counted as gifts and will not be counted towards one’s estate as long as deprivation of assets cannot be proved:

  • properties including a house, land or buildings
  • household and personal goods; such as furniture, jewellery or antiques
  • money
  • stocks and shares 
  • unlisted shares (held for less than 2 years before the death of the gifting party) 

If someone chooses to sell a valuable asset at a reduced value, the difference in the selling price versus the market value of that asset will be considered as a gift. 

Inheritance tax due on gifts worth up to £325,000 is not taken from the beneficiary but accounted for in the deceased’s estate; unless the gifting party passes away within 7 years of transferring the gift.

What Is Inheritance Tax?

Inheritance Tax is a tax that is levied on the estate of someone who has passed away and left behind property, money and possessions that need to be “managed” in an appropriate manner so that (a) if there is a will made by the deceased, the instructions are followed or (b) in the case that there is no will of the deceased, the estate is appropriately handed over to the legal heirs.  

The standard rate of Inheritance Tax is 40 per cent on an estate valued at or more than £325,000.

Even though, there is no inheritance tax levied on an estate that is valued below £325,000; however, you may still be required to report the property to HMRC. Similarly, if valuables above the £325,000 threshold are left behind in the name of one’s partner or spouse, a charity or a community club, there will be no inheritance tax levied. 

If the same property is left behind for children, the threshold will increase to £500,000. 

What Is A Capital Gains Tax?

Whenever someone sells an asset, there is a difference between the purchase price and the selling price. If you receive gain while selling, this is a capital gain and the incremental amount will be taxed. These may include the following:

  • Personal possessions that are valued at or above £6,150 (does not include vehicles)
  • Real estate property that cannot be claimed as your main home
  • Your main home if it is being rented or used for business
  • Shares (those which are not in an ISA or PEP)
  • Business assets
  • Cryptoassets (only in certain cases)

How Much Tax Do I Have To Pay In The UK?

According to a general estimate, an individual pays one-third of their income in the form of taxes in the UK. While the amount of tax one pays depends on the scale of their income, some people will pay a higher tax perhaps due to the property that they own or inheritance that they may receive.

There are different types of taxes under the UK taxation system. Direct taxes include PAYE (Pay As You Earn) and National Insurance. These account for 20 per cent of an individual’s income. On the other hand, indirect taxes include VAT, council tax as well as duties on alcohol and petrol. 

Therefore, basic taxes in the UK include the following:

  • Income Taxes 
  • Property Taxes 
  • Capital Gains 
  • UK Inheritance Taxes 
  • Value Added Tax 

What Counts As Deprivation Of Assets?

When someone deliberately reduces their assets to avoid having to pay fees and taxes, it is considered as “Deprivation of Assets”.

While most individuals consider that transfer of savings, selling of one’s property or gifting their home to a family member is all that counts as deprivation of assets, that is not all. Any of the following actions can be counted as deprivation of assets (unless there is evidence to prove otherwise):

  • To give away a large sum of money
  • To transfer the title deed of one’s property
  • To spend a large amount of money which is in contrast with the spender’s usual spending pattern
  • To lose money through gambling 
  • To use savings in order to purchase items excluded from a means-test such as a car or jewellery

What Is Not Considered As Deprivation Of Assets?

According to the Guidance manual on assessment of capital, if the claimant has sold or transferred assets with the intention to:

  • reduce or return the debt that they owe (either to an individual, bank or the state),
  • make credit cards payments,
  • pay for their mortgage,
  • make payments for day to day expenses,
  • improve their quality of life (for e.g by purchasing a new car or rebuilding a kitchen),
  • improve their quality of health through medical expenses, or
  • go on a holiday

it will not be considered as deprivation of assets.

Conclusion:

When someone who lives in the UK receives a gift of money from abroad, they are not required to pay any tax on the amount that they have received. However, if they deposit that amount in a bank account with the intention to earn an income through it, the amount will then be taxed. This is not the case when the sender and receiver are both UK residents as there are various tax related implications depending on the amount being gifted.

FAQs: Do I Have To Pay Tax On Receiving Gift Money From Abroad In The UK?

How much money can you receive as a gift without paying taxes in the UK?

You can gift up to £3,000 in the UK without the receiver having to pay taxes. Gifts that are valued beyond this amount classify the receiver as eligible to pay inheritance tax.

Do I have to declare cash gifts to HMRC?

You do not have to declare small cash gifts worth up to £250 to HMRC or even those amounting to your annual allowance of £3,000. However, gifts worth more than £3,000 are to be delcared to HMRC.

How do I avoid gift tax?

To avoid gift tax you may consider keeping your gifts within the £3,000 annual allowance. At the same time, you must make sure that your act of gifting does not appear as a deliberate reduction of capital to avoid taxes or increase benefits claim.

How does HMRC find out about gifts?

While HMRC will not maintain a close monitor on individuals to track the gifts they receive, if someone is found to be deliberately avoiding taxes, they will be fined by HMRC and will also have to pay the amount of tax that they have evaded.

How much money can you have in the bank and still claim benefits in the UK?

You can have up to £10,000 in the bank and still claim benefits in the UK. In the case of Pension Credit, this amount can be up to £16,000.

Do I have to inform HMRC if I inherit money?

Yes, you have to inform HMRC if you inherit money. If there is tax due on it, it will be taken from the deceased’s estate.

References:

Cash Gift from a Non-UK Resident | International Tax Experts.

Gift tax for cash gift from overseas – Community Forum – GOV.UK

Deprivation of assets | Social care means tests

How Inheritance Tax works: thresholds, rules and allowances – GOV.UK).

Income from voluntary or charity sources.

How do savings and lump-sum payouts affect benefits? | MoneyHelper

Gifting money in the UK explained ✔️ – Taxes

How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts – GOV.UK

How Much Money Can I Gift Someone

What was missing from this post which could have made it better?