Tax Planning

Are retirement gifts taxable?

· 9 min read

Whether you're involved in buying a retirement gift for a colleague or have recently received a generous retirement gift yourself, it's worth knowing whether they're taxable and other aspects of giving or receiving such gifts.


Are retirement gifts taxable?: Your questions answered

  • What is the best retirement gift?

    Consumables are typically the best retirement gifts. Special bottles of wine, champagne or spirits are bound to be consumed and won’t sit collecting dust on the mantelpiece! Customisations options like custom labelling or wooden gift boxes can personalise the gift. 

  • What is a typical retirement gift?

    A typical retirement gift usually has some form of inscription, signed off by the company, any managers, directors and colleagues. Plaques, watches, jewellery or other engravable metal trinkets are all go-to options. 

  • Do I need to buy a retirement gift?

    It depends on how long someone’s service to a company is and how momentous the occasion is. Some people will retire gradually and may not set an exact retirement date - they might be tough to buy retirement gifts for. 

Retirement is one of life's significant milestones, the end of an era and the start of a new one.

Upon retirement, it's common to give and receive retirement gifts to and from others. Your employer may also wish to provide you with a parting gift.

Retirement gifts vary from more grandiose gifts like expensive wines, spirits or even watches and jewellery to much more modest novelty offerings - perfect for retirement party antics!

Love Money found the average retirement gift value given by employers in the UK was as little as £2.17 for each year of employment. 

There’s plenty of scope for giving more than that without incurring additional tax. Still, even retirement gifts are subject to rules and tax regulations.

What are retirement gifts?

So you're approaching retirement, checked your retirement benefits, and ran through your pension options, but could there be another pleasant surprise in store for you? A retirement gift, perhaps?

Retirement gifts take two different forms. 

Firstly, retirement gifts are any gifts given privately to another by friends, family or colleagues to celebrate someone’s retirement. 

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A retirement gift, in this sense, is just a gift and is subject to the same rules and regulations surrounding gifting money and assets in the UK.

Many people don't realise the rules and regulations surrounding gifting in the UK. It's not a free for all; you can't give away vast volumes of money without breaking tax rules. We'll be covering this in a moment.

The other type of retirement gift is a gift given by employers. This comes with its own unique tax rules and limits.

These rules are essentially designed to prevent tax evasion, loopholing and dodging. 

Whilst most cheaper retirement gifts are likely inconsequential for tax purposes, more expensive gifts do get a little more complex. 

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Is a retirement gift taxable?

Retirement gifts are provided to employers as a gift to reward ‘long-term service’, currently defined as 20 years of employment or longer. 

Many companies have an informal policy of providing retirement gifts, the same as they might send employees gifts for Christmas, birthdays and weddings.

Tax rules do apply to long-term service rewards, and they'll typically have to be declared as non-taxable expenses on a P11D form

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When an employer gives a long-term employee a retirement gift

Retirement gifts awarded as cash count as part of the employee’s taxable earnings. 

Cash gifts must be added to the employee’s other earnings and are payable as Class 1 National Insurance and PAYE tax. These are reportable on the P11D form before the end of the tax year. 

In essence, this is to prevent cash gifts from presenting a tax loophole. Employers can provide cash retirement gifts to their employees, but there are no specific tax exemptions for these.

However, under ITEPA 2003, section 323 (“Long service awards”), some retirement gifts are exempt from tax, provided they meet specific criteria.

Long service is defined as 20 years or more continuous employment. Long service awards can only be made if their recipient has not received a previous long-service award in the last ten years.

The non-cash retirement gift must be valued at £50 or less per year or service. So, an employer of 20 years can be given a retirement gift of up to £1,000 in value without incurring tax. Any value given over the £50 threshold will incur Class 1A National Insurance.

The gift must be recorded on the P11D form, regardless of whether it is taxable or not. 

Non-cash retirement gifts may also cover readily convertible assets, like company stocks and shares or commodities. These incur PAYE and Class 1A National Insurance, and any value above £50 per year will incur income tax.

Full rules are available in the HMRC Employment Income Manual.

In light of these rules, the most straightforward gifts are things like wine, jewellery, and other novelty gifts, much the same as you'd give someone for their birthday or Christmas.

When you give someone a private retirement gift

If you're giving a retirement gift to someone privately as a present, this falls under your standard annual gift allowance. 

In the current 2021/2022 tax year, you’re allowed to give up to £3,000 as a non-taxable gift. Anything beyond this is taxable as an inheritance. The primary justification is to prevent people from giving away all their money before they die without incurring inheritance tax.

Small gifts up to £250 are not covered by this rule. You can give out as many of these as you like to different people without paying tax.

Retirement gift ideas

There are loads of retirement gift ideas suitable for all retirees. 

Whether you’re providing retirement gifts for women or retirement gifts for men, there’s plenty of choice ranging from more luxurious keepsakes to funny or novelty gifts. 

Novelty retirement gift ideas

Novelty retirement gifts include mugs, t-shirts, engraved keyrings and other funny and somewhat insincere options. Many of these can be customised, perfect if you're an employer looking to give a retiring employee a personalised gift that marks their employment. 

This retirement sash is a cheap and cheerful novelty retirement present, perfect for a retirement party. 

There are loads of funny mugs designed for retirees, excellent for a retirement ‘stocking filler.’ 

Cute keepsake keyrings make superb retirement gifts for women. Many can be customised with personalised engravings. 

Novelty books are another fun and quirky retirement gift option, or this inflatable zimmer frame for retirement party antics. 

A quick flick through Amazon reveals near endless fun novelty retirement gifts ranging from just a few quid to more substantial amounts, like this engraved glass plaque

Retirement gifts for men

Ideal retirement gifts for men are bottles of whisky, bourbon or other spirits, casks of beer and other exotic or special booze. A £50 yearly allowance even allows you to buy a bottle or case for every year of employment - an ample supply for many years of happy retirement!

You can find personalised boxes for placing bottles in, superb for adding a personal touch to boozy retirement presents. 

Other ideas include days out and experience days, like a year's golf pass to a local course or a rally driving experience.

The cumulative £50 allowance even makes longer and more luxurious trips and holidays a possibility. You could purchase your retiring employee a getaway or weekend retreat. 

Aftershave sets, cologne, chocolates and hampers make excellent mid-priced retirement gifts for men. Hampers are easily customisable with personalised messages. Sets of golf clubs or fishing equipment can tee someone up for a dabble in retirement-friendly sports and activities. 

In the jewellery range, watches and cufflinks are very popular options. The £50 a year allowance may not afford a retiree a Rolex, but can still go pretty far to buy a highly memorable gift with plenty of sentimental value and longevity. 

Retirement gifts for women

Once again, booze tends to rank highly in any list of retirement gifts for women. 

From artisan spirits to wine, champagne or an ample supply of prosecco, alcoholic retirement gifts are sure to be consumed. You can easily personalise them with messages or even custom labelling.

Cushions, blankets, chairs and other furniture or upholstery can make excellent retirement gifts for women. Embroidered cushions and blankets allow an employer and colleagues to go to town on customisation options.

There are many retirement gift options in the jewellery category, ranging from necklaces to rings, earrings and other trinkets, many of which can be engraved. 

Spa days, retreats and experience days always make for superb retirement gifts, especially if you know that someone has always wanted to try something like a bungee jump or race car experience. 

Hampers and food-related gifts are always a great option. Hampers can be easily customised with the retiree’s favourite foodstuffs. 

Luxurious retirement gift ideas for women include fashion brand purses, handbags, scarves and other accessories. Accessories are always a solid choice as they’re usually one-size-fits-all. 

From Louis Vuitton to Hermes, Gucci and Prada, high-end fashion gifts are sure to be memorable.

Are retirement gifts taxable?

Retirement gifts are not usually taxable but can only be awarded to long-term employees that have been working for the same company for 20 years or longer.

For each year, £50 of non-cash gifts can be granted to the employee. For example, an employee with 20 years of services is entitled to a £1,000 gift that is exempt from tax, though it must still be recorded on the company’s P11D form.

If you’re considering giving a retirement gift to a friend or relative, you're more or less able to give what you like but be aware of the annual £3,000 annual gift exemption. Gifts of £250 or under won’t contribute to this. 

Retirement gift ideas span from silly or funny novelty gifts to more expensive luxurious items. 

You can’t beat consumables like hampers, cakes, chocolate and of course, alcohol!

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Pension Times Finance Experts
Pension Times Finance Experts
Written collaboratively by Pension Times’ in-house finance experts.
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