HMRC tax rule with 'no limit to how much cash you receive'

HM Revenue and Customs (HMRC) has provided clarity on a crucial tax-free rule following an enquiry from a taxpayer. The individual had received a £100,000 gift from their sibling and was uncertain about the tax implications for the sum.

They asked: "Do I have to declare in the tax return? Or this money will be considered as tax free after seven years?" The seven-year rule they're likely referring to is related to inheritance tax. If you give a large gift - above the annual tax-free allowances - and you live for another seven years, this amount becomes exempt from inheritance tax.

HMRC responded: "There is no limit to how much cash you receive as a gift for income tax purposes as long as it's not related to employment." They also directed the individual to the Government's advice page on inheritance tax.

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Another key point when giving away a gift subject to the seven-year rule is that even if the giver passes away before the seven years has been completed, the amount may be taxed at below the standard 40 percent rate for inheritance tax. This is due to the tax rate for the gift tapering off as the seven-year mark approaches.

This is how the tapered rate works depending on how many years has passed since the gift was given:

• 3 to 4 years - 32 percent

• 4 to 5 years - 24 percent

• 5 to 6 years - 16 percent

• 6 to 7 years - 8 percent

• 7 years or more - zero percent.

Significant changes to inheritance tax were announced in Rachel Reeves' Budget last week, the first from the new Labour Government. From April 2027, pensions will become subject to inheritance tax, a change that could impact many.

Experts have warned this would lead to a "fundamental shift" in estate planning. Mike Ambery, retirement savings director at Standard Life, part of Phoenix Group, stated: "Pensions have been seen as useful tool for estate planning and there will be individuals and families who have approached retirement and estate planning based on existing rules.

"Now, the value of pension pots will be added to the total value of other assets and if over the IHT threshold of £325,000, aside from other exemptions, will be taxed in the same way." Each person is entitled to an individual nil-rate allowance, which allows them to pass on £325,000 worth of total assets tax-free, plus a £175,000 allowance when passing on your main home to a direct descendant.

Any unused allowance can be passed on to your spouse or civil partner upon death, meaning they could have a nil-rate allowance of up to £1million when they die.