Gifting money to family members is a common practice in the UK. However, there are some important rules and restrictions around gifting large sums of money like £10,000 that you need to be aware of.
What are the rules around gifting money in the UK?
There is no limit on how much you can gift to another individual in the UK. However, if you gift over £325,000 over the course of your lifetime, you may have to pay inheritance tax on the amount over this threshold.
For gifts under £325,000, the main rules are:
- You need to genuinely be gifting the money – it cannot be a loan
- The gift needs to be from your surplus income or savings – you still need to be able to maintain your normal lifestyle after making the gift
- The recipient will not have to pay any tax on cash gifts from family members
As long as you meet these requirements, you can legally gift £10,000 or any other amount to your son without tax implications.
Are there any other implications of gifting £10,000?
While your son will not have to pay tax on the £10,000 gift, there are some other potential implications to be aware of:
- Means-tested benefits – If your son is receiving any means-tested benefits like Universal Credit, a large cash gift may affect his eligibility or payment amounts for a period of time
- Student finance – Cash gifts may need to be declared as part of a student’s income when applying for student finance
- Mortgages – Lenders may ask for evidence of where large deposits or cash gifts have come from. Make sure you have documentation showing the gift is genuine.
What are the best ways to gift £10,000?
There are a few options for gifting a large sum like £10,000 to your son. Some good approaches include:
- Bank transfer – This leaves a paper trail showing the gift is genuine and leaves you with evidence in case any questions arise in future.
- Cheque – Gifting by cheque also provides a record of the transaction taking place.
- Savings account – You could open a savings account in your son’s name and deposit the funds into that account as a gift.
- Premium bonds – Buying premium bonds and registering them in your son’s name allows you to gift the money while still having the chance to win a tax-free prize.
Keeping records of any cash gifts is advisable in case evidence is needed in future for things like mortgage applications.
Is it better to gift lump sums or staggered smaller amounts?
There are pros and cons to gifting £10,000 as a one-off lump sum versus making multiple smaller gifts spread out over time:
|Lump Sum Gift
|Staggered Smaller Gifts
There is no definitive right or wrong approach. Consider your specific circumstances and your son’s situation when deciding whether to gift as a lump sum or over time.
What are the gift tax allowances between family members?
There is no limit on gifts between family members in the UK. You can give as much as you want free of inheritance tax.
The main gift tax allowances are:
- Annual exemption: You can gift up to £3,000 per tax year to one person without any inheritance tax implications.
- Small gifts exemption: You can make small gifts of up to £250 per person per tax year.
- Regular gifts from income: Gifts from surplus income that don’t affect your standard of living are exempt.
- Wedding/civil partnership gifts: Up to £5,000 per recipient is exempt from inheritance tax.
- Gifts to charities: All gifts to registered charities are exempt from inheritance tax.
But gifts between spouses or civil partners, and gifts to other individuals up to £325,000 over your lifetime are already exempt from inheritance tax. So there is no need to worry about allowances when gifting £10,000 to your son.
Is a gift letter advisable when gifting large amounts?
Providing a gift letter is recommended when gifting large sums like £10,000, even between family members. A gift letter should include:
- The date of the gift
- The amount being gifted
- The name of the gift giver
- The name of the gift recipient
- Confirmation the funds are an outright gift, not a loan
- Signatures of both the giver and recipient
Having a gift letter makes the source of funds clear. It provides evidence in case any questions come up in future around mortgages, benefits claims or other matters.
Is a deed of gift also needed?
A deed of gift is usually not necessary for cash gifts to family members. It is a legal document that formally transfers an asset from the ownership of one person to another.
Deeds of gift are more commonly used when gifting physical assets like property or shares. For straightforward cash gifts, a simple gift letter is usually sufficient.
Situations where you may want to consider using a deed of gift for cash include:
- Very large gifts exceeding the inheritance tax threshold
- Gifting to someone where inheritance disputes may arise
- You want to place conditions or strings on the gift
For gifting £10,000 to your son without complications, a gift letter is the easiest and clearest approach in most cases.
Does gifting affect mortgage applications?
Gifting large sums like £10,000 can sometimes affect mortgage applications. Lenders will want to confirm:
- Where the gifted funds have come from
- That the funds are genuinely a gift, not a loan
- Any impact the gift may have on your own finances
To satisfy mortgage lenders:
- Keep records showing where the gift has come from and your relationship to the recipient
- Provide a gift letter signed by both parties confirming the nature of the gift
- Be prepared to provide bank statements and evidence of your own financial position
Providing thorough evidence and documentation can help avoid delays or complications when using gifted funds as a mortgage deposit.
Are there any alternatives to cash gifts?
Some alternatives to gifting £10,000 as a cash lump sum include:
- Pension contributions – You can make contributions to your son’s pension up to £2,880 per year.
- Junior ISA – Up to £9,000 can be contributed tax-free into a Junior ISA each tax year.
- Premium bonds – You could purchase £10,000 worth of premium bonds and name your son as the beneficiary.
- Trusts – Setting up a trust allows you to retain some control over the gift and how it is used.
- Life insurance – Taking out a life insurance policy naming your son as the beneficiary provides a lump sum after you pass away.
Each option has different features, tax implications and control levels to weigh up.
Gifting £10,000 to your son can be done simply and legally by following these key steps:
- Check the gift won’t impact your own finances or lifestyle
- Use bank transfer, cheque or savings account to provide a paper trail
- Provide a gift letter signed by both parties as evidence
- Keep records in case future mortgage or benefit claims need verification
With the right documentation and evidence, £10,000 cash gifts between family members usually proceed smoothly. Make sure to evaluate any implications and keep organized records for clarity and transparency.