1) log into PayPal
2) At the top, hit "Send Money"
3) Enter the recipients email, and the amount
4) Below the amount there are two tabs, the default is "Purchase". Select the "Personal" tab, and now the default selection is "Gift."
I believe you have to have a bank account linked (not just a credit card) for the free gift option to work.
As always, dont do the "gift" option to someone you don't trust, as there's no buyer protection with Paypal when the Gift is selected.