A Question About Gifts And Tax

[Henry1865]

How do HMRC define years? Is it the date of a gift, or the tax year it is given in?

 

 

[Buenchico]

Assuming that you're referring to the Inheritance Tax provisions (although it'll almost certainly be the same for other tax matters), see 'Annual exemption' here:
https://www.gov.uk/inheritance-tax/gifts

[Henry1865]

So I take it is it calendar year and not tax year?

[Buenchico]

^^^ No!

From my link:
"You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’.

You can give gifts or money up to £3,000 to one person or split the £3,000 between several people.

You can carry any unused annual exemption forward to the next tax year - but only for one tax year.

The tax year runs from 6 April to 5 April the following year."

[alimuzzaman]

HMRC (Her Majesty's Revenue and Customs) defines "years" in terms of tax rules based on the tax year rather than the specific date a gift is given.

In the context of Inheritance Tax (IHT) and gifts, the following points are relevant:

Tax Year Definition

A tax year in the UK runs from 6 April to 5 April the following year.

For example, the 2024/2025 tax year runs from 6 April 2024 to 5 April 2025.

Gifts and Inheritance Tax

When it comes to gifts and Inheritance Tax (IHT), the date of the gift is crucial because it determines when the gift was made for tax purposes.

However, the tax year in which the gift is made is important because there are annual exemptions (e.g., the £3,000 annual exemption) and gift allowances that apply within the tax year.

Seven-Year Rule

For gifts made during a person's lifetime, HMRC uses the seven-year rule to determine if the gift is subject to inheritance tax. The rule works as follows:

If the donor dies within seven years of making a gift, the value of the gift is considered part of their estate for IHT purposes.

The seven-year period is measured from the date of the gift, not the tax year.

Key Points

The Date of the Gift: The date the gift is made is important for determining if it’s subject to inheritance tax.

Tax Year: The year in which the gift is made may affect how exemptions or allowances are applied.

For example, if you give a gift in a tax year and use up your £3,000 annual exemption, that applies to that specific tax year.

Gifts Made Before 6 April: If you give a gift just before the new tax year (e.g., on 5 April), it would be part of the previous tax year for exemption purposes.

Example:

If you give a gift on 1 May 2024, it falls in the 2024/2025 tax year.

If you give a gift on 28 March 2025, it falls in the 2024/2025 tax year, but the impact on the seven-year rule will depend on the donor's date of death.

So, to answer your question: The date of the gift determines when the seven-year rule applies, while the tax year determines the application of annual exemptions and allowances.

[Henry1865]

Many thanks for both clarifications.