UK tax and evidence for money gifted by family

Katerina Galkina · EN · 07/10/2026

Establish whether it really is a gift

An ordinary, unconditional cash gift from a relative is generally not taxable income for the recipient. HMRC confirms this in its official response about cash gifts ↗. The amount transferred does not by itself make a gift equivalent to salary.

However, writing “gift” in a payment reference does not change the substance of a transaction. Payment for work, company distributions, repayment of a loan and trust income need a different assessment. If repayment is expected, document a loan rather than signing an unconditional gift declaration.

Do not confuse gifts with Inheritance Tax

The often-mentioned £3,000 is the donor's annual Inheritance Tax exemption ↗, rather than a recipient's maximum tax-free gift. It concerns the aggregate value of relevant gifts in a tax year. Larger gifts may involve the seven-year rule and other conditions; exceeding £3,000 does not automatically create a tax bill on the transfer date.

For an overseas donor, first establish whether UK Inheritance Tax rules cover that person and the relevant assets. Since 6 April 2025, long-term tax residence rules ↗ are relevant. Nationality and the fact that the recipient lives in London do not settle the question.

Keep evidence supporting the transfer

Prepare a letter recording the parties, date, amount, currency, relationship and confirmation that repayment is not required. Retain statements, evidence of the donor's source of funds and the complete transfer trail. For a substantial amount, check the receiving bank's evidence requirements in advance.

If the gift will fund a property purchase, agree its treatment with the mortgage lender and conveyancer as well. They may require their own declarations and donor documents; the SRA explains these checks ↗. Establishing provenance and determining tax liability are separate matters. A successful bank transfer is not a tax ruling.

Consider income generated afterwards

Once the gift is received, interest, dividends or rent from assets bought with it may be taxable under the usual rules. For a UK tax resident, foreign income ↗ also matters, subject to reliefs available in their particular circumstances. Keep the original gifted capital separate from subsequent income in your records.

Special rules apply to income generated by a parent's gift to their minor child; do not automatically apply the adult position. For substantial assistance, trusts, complicated residence histories or regular payments, ask a tax professional to assess both parties' circumstances and the donor country's requirements. This is more useful than dividing transfers around an imagined “tax-free transfer limit”.