Am I using my tax exempt gifting to grandchildren correctly?

Out of interest, how do you show that a gift is from income rather than capital? If I had a pension of £2000 a month and plenty of money in savings, I could give away the £2000 from my pension income each month and transfer money from my savings to live off. Or I am missing something?

Movingonup You need to differentiate between gifts out of capital and gifts out of income.

Gifts out of capital
£3000 is the annual exemption in total. In addition the £250 small gifts exemption can be used for gifts to any number of people in a year but you cannot use that exemption more than once in the same year to the same. person. There are other exemptions for gifts out of capital (wedding presents for example) These are all gifts out of capital (ie your savings). These annual exemptions do not fall within the 7 year rule. However, if you were to give her £10,000 then that would be subject to the 7 yer rule.

In the example you give above the £250 for Christmas is a "small gift" out of capital. The £250 for her birthday must come out of your income. If you give her £3000 that is exempt but you cannot claim a further £3000 exemption for a second grandchild (or anyone else) in the same year.

Gifts out of income
You can give as much as you like in gifts out of income but they should be regular and out of income and not affect your standard of living.

7 year rule - if you are worried about this, keep a record of the date and amount of the gift and the beneficiary. Also give the beneficiary a letter along the lines of "Dear.... Please find a cheque for £10,000. Please keep this letter"
The same thing applies if you give away valuable furniture, jewellery or paintings, - keep a record.

Thank you all so far. I have seen all the websites. Maybe someone here can offer clarity. I will use just one grandchild for clarity.

I want to give £3K to her as a one off gift. I have already given her £250 at Christmas and £250 on her birthday this past financial year.
Is that allowable - the £3K (given the 7 year exemption of inheritance tax rule)?

What you can do is give them a regular amount each month.

Look on the HMRC website - it's quite easy to understand. The following link details the different types of gifts.

Gifts out of income (must be income not capital) can be used to build up a fund for grandchildren to use when they are older. Could be university, a deposit on a house, etc.

MovinOnUp Small gifts of £250 - as many as you like provided you aren't using another exemption for the same person.

www.gov.uk/inheritance-tax/gifts

Cabbie21

That will depend on whether inheritance tax is going to be an issue. Depending on circumstances, it is possible to leave up to £1m without your estate needing to pay IHT. In which case there is no need to worry about gifts during your lifetime.

Correct, a couple can do that but there are rules to follow, best to check them out in advance.

It’s clear here, sorry, for some reason the link won’t work:

MovinOnUp

May I suggest you look on the following website:

helpandadvice.co.uk/how-much-money-can-you-gift

It was updated earlier this month and I think it explains your query quite succinctly.

Good luck! ? We have the same concerns as you. ?

I’m going to be no help at all as I’m completely cavalier about all of this. I just give money away as when it’s helpful and needed. Sometimes it’s a few hundred, sometimes much more .IMO there’s no chance it’ll ever be checked up on. I think IHT is one of the unfairest taxes as for the really wealthy it’s completely voluntary. If the Dukes of Westminster never pay any, I’ll be blowed if I’m keeping records of anything I pass on whilst I’m alive. I’m a bad person. If they need it and you don’t, give it to them ?

Ok so time is important and we need to be aware of the 7 year rule.
But no one here seems to know about the gifts of £250 which I am querying about.

That will depend on whether inheritance tax is going to be an issue. Depending on circumstances, it is possible to leave up to £1m without your estate needing to pay IHT. In which case there is no need to worry about gifts during your lifetime.

£3000 each of you in total per year, free of tax

You can give any amount from income as long as it does not reduce your lifestyle, if you die within 7 yrs tax may be charged, it’s a sliding scale

I've given far more for house deposits - just assuming that I won't expire within seven years - not if I can help it!

If you did not use your allowance in the previous, I believe that you can carry it forward, and use it this year.

Oh yes, I see, £3000 from each grandparent.

I’ve been on my own so long, I forget there’s allowances for two people?

£3000 per year per grandparent yes. However, the rules seem to say that additional gifts of £250 can be made to others.

As I’ve always understood it, £3k per annum per donor. (Not per recipient.). And you can backdate it one year, if you didn’t give your full allowance then.

The £3000 in total looks right to me. Otherwise how much you can give away could depend on how many children or grandchildren you have. For instance, we have 9 grandchildren, if we gave them each £3000 (some hope!) we would have given away £27000, which doesn't seem right.

I thought it was?

Which bit do you think is wrong?

Peablossom I don't think that is correct.
www.gov.uk/inheritance-tax/gifts

No, £3000 is the total amount you can give, not £3000 each.

However you can still give it. It just means that if you die within seven years there might be tax payable.

Honestly I’m not sure anyone would be chasing that, but you never know.

There’s also a proviso that if it comes out of your yearly income, not capital, you can give as much as you like, it’s all a bit complicated.