Have you ever thought about helping your children or grandchildren financially? Maybe you want to contribute towards a house deposit, support university costs, or simply give a helping hand.
Gifting can be a wonderful way to make a real difference to your family’s future. But it’s important to understand the tax rules, particularly with regards to Inheritance Tax (IHT) and exemptions.
What Counts as a Gift?
In HMRC’s eyes, a gift is anything that has value. This includes cash, property, land, shares, jewellery, antiques, and even selling something to a family member for less than it’s worth.
Because gifts can affect the value of your estate, it’s important to know how they are treated for Inheritance Tax and, in some cases, Capital Gains Tax.
Your Annual Gifting Allowance
Every UK adult has a £3,000 annual gifting allowance. This means you can give away up to £3,000 each tax year without it being added to the value of your estate for Inheritance Tax purposes. You can give it all to one person or split it between several people.
Didn’t use last year’s allowance? You can carry it forward for one year. For couples, this can be even more powerful. Together, you could gift up to £6,000 a year tax-free, or £12,000 if you’re using both the current and previous year’s allowances.
Any amount gifted to your spouse or civil partner is tax-exempt.
Small Gifts That Add Up
You can also give small gifts of up to £250 per person each year to as many people as you like. This is ideal for birthdays, Christmas, or helping friends or family members with everyday expenses. Just remember, you can’t use this allowance for someone who is also receiving part of your £3,000 annual exemption.
Wedding and Civil Partnership Gifts
Special occasions come with extra allowances. If you’re helping a loved one celebrate a wedding or civil partnership, you may be able to give more without triggering tax.
Parents can gift up to £5,000, grandparents up to £2,500, and anyone else up to £1,000. These gifts can usually be combined with your annual £3,000 allowance, allowing you to be generous while staying tax-efficient.
Regular Gifts From Your Income
Do you have surplus income each month? If so, you may be able to make regular payments to family members without any Inheritance Tax implications.
This could include helping with rent, paying into a child’s savings account, or supporting an elderly relative. The key rule is that these payments must come from your regular income and must not affect your own standard of living. There’s no fixed limit, which makes this a powerful and flexible option when used correctly.
Larger Gifts and the Seven-Year Rule
If you make a larger gift that goes beyond your allowances, it usually falls under what’s called the “seven-year rule”. In simple terms, if you survive for seven years after making the gift, it becomes completely free of Inheritance Tax.
If you pass away within that seven-year period, some tax may be due. The amount reduces over time. The longer you live after making the gift, the less tax is payable. After three years the tax starts to taper down, and after seven years it falls away entirely.
| Years between gift and death | Tax rate |
| 0 to 3 years | 40% |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 or more years | 0% |
It’s also worth knowing that gifts made in the seven years before death are counted against your Inheritance Tax allowance first. This can reduce the allowance available for the rest of your estate, such as your home or savings.
What About Capital Gains Tax?
Inheritance Tax isn’t the only thing to consider. If you gift assets like property or shares, Capital Gains Tax may apply.
This is based on how much the asset has increased in value since you bought it. For example, if a property has risen in value and you gift it to a child, tax may be due on that growth. Your annual Capital Gains Tax allowance is currently £3,000.
Transfers between spouses or civil partners are usually exempt, but gifts to other family members can trigger a tax charge. This is an area where advice can make a big difference.
Keep Good Records
Keeping simple records can save a lot of stress later on. Make a note of what you gave, when you gave it, who received it, and whether the gift came from income or savings. This makes things much easier for your family and for HMRC if questions ever arise.
Planning Ahead Makes All the Difference
The earlier you start thinking about gifting, the more options you have. Understanding the value of your estate, using allowances regularly, and planning around the seven-year rule can all help reduce the amount of tax your family may face.
Some people also consider life insurance written in trust to help cover potential Inheritance Tax bills, keeping more of their estate intact for loved ones. Read more about this in our blog.
Gifting is about more than money. It’s about helping the people you care about enjoy life, feel secure, and build their own future. With the right planning, you can do this in a way that’s kind to both your family and your finances.
If you’re unsure about the best approach, you don’t have to work it out alone. We’re here to help you make clear, confident decisions that fit your goals and protect your long-term financial security.
