Hearts - Women Empowering Women
Following the recent warning issued by Patricia Hewitt MP, Secretary of State for Trade and Industry and Minister for Women entitled - Hearts "Gifting" Scheme - It Could Seriously Damage Your Pocket!
Ashley Clark, Director at has appeared on National Radio Talk Live this afternoon. He has issued the following guidance on tax implications and notes caution on the recent craze of "Gifting Circles".
This is an archived story that we published some 12 months ago. Given the coverage on television and radio over the last few days - we have re-posted it with all our research to help you.
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The full text story is as follows:
Gifting Circles are for some, they believe, a way to make a "Fast Buck". What it is though is a risk to your money and people considering becoming part of a circle should be aware of the risks and tax implications that may affect them.
Is it illegal? No, it is not. It is a system where one person makes a cash gift to another in the hope that others will gift cash back to them i.e. you give money and hope to get more back. The reality is you make a gift of money to another and cannot ask for it back. You are then in a circle of people, others who join after you and below your position in the circle then make gifts of money to you.
The Risks "You can drive as fast as you like but you run the risk of being stopped by the police" . "What is the risk of a meteorite falling from the sky to destroy your house?" Risk means different things to different people. To some, driving above the speed limit may be not worth the risk, to others it may be worth the risk to get to work on time. It is a question of self-judgement on whether you think something will happen or not.
Investment and monetary risk is the uncertainty of a financial loss or gain. Gifting Circles have risks attached like many other investments. There is the risk of whether the circle will continue or not. There is therefore the risk of whether or not you will receive any money or gifts from other people joining your circle.
As an independent financial adviser who advises people daily on savings and investments, I can neither commend or criticise these schemes. The risk that you take is the fact that once you have given your money away it is gone. You then have to wait and see if other people then join the pyramid and in turn make gifts to you. I consider these schemes to be of a high risk nature which may be suitable for people who are prepared to accept the risk of a complete loss of their money and should only be considered by those who are prepared to accept this level of risk.
Fear versus Greed! There are many people that shy away from saving in stocks, shares, isa's or other types of market driven investments as they worry about losing their money because stock markets go up and down. Yet they consider something such as this where you give your money away completely with no guarantee of a return at all.
Tax Implications. There are certain tax rules that affect people who join these schemes. Each person in the UK can give away up to £3,000 per tax year to one person which is outside of Inheritance Tax rules. You can also, separately, give £250 to people as small gifts. You can give away as many £250 small gifts to as many separate individuals as you wish per year. You cannot make a £3,000 gift and a £250 gift to the same person in one financial year. A husband and wife each have their own annual allowances.
What happens if I receive a large amount of money back from a circle? You have received this money as a legal gift from another person. This money is therefore free of income and capital gains taxes. You are free to save, invest or spend it as you wish. There are many ways that you can invest the money you receive and you should always seek professional, independent investment advice to discuss your options.
Adding a note of caution, I also recommend that you keep all documents and paperwork relating to the gifts of money that you make and receive in a safe place.
What is the position when I have made a gift of money and joined a circle? Provided you have given your money away within the limit of £3,000 to one person or a number of small £250 gifts you have no further tax liability. If you give money away in the same tax year which is more than the above limits there may be tax implications that you should be aware of. You need to add up the value of all gifts you have made in the same tax year including those inside and outside the circles. If this is above the limits you have exceeded your Inheritance Tax Gift Annual Allowance and are subject to Inheritance Tax rules. This may mean a tax bill becomes due immediately or at some time in the future, particularly if you die within 7 years of the gift.
Take Advice! I recommend that you seek professional, independent taxation and investment advice to discuss your options. Also, to be safe and avoid unnecessary problems for your estate, I recommend that you make your family and Executors aware of what you have done and that you keep all documents and paperwork relating to the gifts of money that you make and receive in a safe place.
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