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The cash gift will be paid from my personal bank account from the proceeds of the sale of the company. I will have already paid appropriate tax on the proceeds received from the sale as per the rules of Entrepreneurs Relief.

Will either of us have any tax liability on this gift given the fact the individual was also an employee of the company?

My understanding is that it would only be subject to inheritance tax if I was to die within 7 years. Is this correct, or would the previous relationship of Company director to employee complicate this and mean captial gains or income tax would be liable?

Both myself and the friend are UK residents and the business is a UK business. Our friendship predates his employment at the company by 5+ years.

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Employee is irrelevant. Basically you gift money, and there are laws on taxation of expensive gifts. IIRC you will be liable to pay that.

It is a BAD idea - taxes are likely to ramp up fast as the exceptions are tied to how close related the person is, and friend generally is not a relative at all.

If you wanted him to get part of the company for a better taxation, that should have been done - you know, earlier.

More details here:

https://www.money.co.uk/guides/how-do-i-gift-money-without-being-taxed.htm and https://www.gov.uk/inheritance-tax

40% soudns brutal, but everyone lives in a country of their choice. it is what it is - any other arrangement should have been done earlier (i.e. paying the employee a large bonus during the sale).

  • 1
    You answer seems to suggest I can’t gift any non-family member without incurring tax? This is definitely wrong, as stated in the first link you provide. One of the 3 exemptions listed is: “You give the gift more than seven years before you die”. Did your read your own sources? – Logic Anthem Feb 27 at 9:21
  • Actaually I do NOT suggest that. I suggest you read the answer another two or three times. – TomTom Feb 27 at 9:26
  • Done. Please explain how the 7 year exception I mentioned is “tied to how close related the person is”. The 3 exception rules mentioned are exclusionary in their own right. You don’t have to meet all 3 to be excluded. – Logic Anthem Feb 27 at 14:12

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