Giving gifts, whether money, property, or personal possessions, is a common and thoughtful way to pass on your estate while potentially reducing the amount of Inheritance Tax (IHT) your loved ones may need to pay.
In the UK, Inheritance Tax is typically charged at 40%, but the good news is that many gifts can be completely tax-free or taxed at a reduced rate, depending on your circumstances.
This guide to Inheritance Tax on gifts in the UK will walk you through everything you need to know in a clear and simple way.
Introducing Inheritance Tax
How gifts can help reduce Inheritance Tax
Not all gifts are treated the same when it comes to IHT. Whether a gift is tax-free depends on several key factors, including:
- 1 Who you give the gift to (for example, a spouse, family member, or friend)
- 2 What you give (cash, property, or other assets)
- 3 When you give it (especially how long before your death the gift is made)
Understanding these rules can make a significant difference when planning your estate.
What you’ll learn in this guide
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Inheritance Tax-free gifts
What you can give without any tax implications.
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PETs
Potentially exempt transfers, or PETs, are gifts that may become tax-free over time.
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Inheritance Tax taper relief
How tax reduces on certain gifts if you live for a number of years after giving them.
What counts as a gift?
According to HMRC, a gift is anything of value that you give to another person. This includes:
- 1 Money
- 2 Property or land
- 3 Personal possessions (such as jewellery, antiques, or vehicles)
It’s also worth noting that if you sell something for significantly less than its market value, HMRC may still treat the difference as a gift.
For example, if you sell a house worth £300,000 to a family member for £200,000, the £100,000 difference could be considered a gift for Inheritance Tax purposes.
Inheritance Tax-free gifts
Whether or not a gift is exempt from tax depends on what the gift is, how much it is worth, who it is given to, and when it is given.
Some gifts are exempt from tax because they are within a person’s £3,000 annual tax-free gift allowance. Other types of gift are classified as being always tax-free, and some gifts are classified as being potentially tax-free. You can find out more about each of these types of exemption below.
Annual tax-free gift allowance
Everyone living in the UK have an annual tax-free gift allowance. This means that you can give away up to the value of £3,000 in gifts in a year without this being added to your estate for tax purposes.
If you do not use your tax-free gift allowance within a given year then the remaining amount rolls over to the next year. However, it can only roll over into the next year: it does not accumulate over multiple years. Therefore, the most that your tax-free gift allowance can be in a year is £6,000.
List of exemptions to gift tax in the UK
No tax is required to be paid on the following types of gift. They do not count towards the estate even when made in the seven years before death. They also fall outside of the annual tax-free gift allowance.
- Wedding and civil ceremony gifts: Wedding and civil ceremony gifts of value up to £1,000 are exempt from inheritance tax and from your ‘annual exemption’. The limit increases to £5,000 for a child, and £2,500 for grandchildren
- Christmas and birthday gifts: Christmas and birthday gifts are exempt from tax. The only condition of this is that you ‘must be able to maintain your standard of living after making the gift’
- Payments to help with another person’s living costs: Payments to support another person’s living costs are exempt from tax. The two most common situations where this applies is supporting a child or supporting an elderly relative. You can read more about funding elderly care from our guide to care funding
- Donations to charities, political parties: Gifts to charities and political parties are exempt from tax
You can use more than one of these exemptions for tax-free gifts on one person. So, you can buy somebody a wedding gift as well as a birthday gift in a given year. You can also give away as many ‘small gifts’ of up to £250 as you want, as long as you have not used one of the other exemptions on that person.
It's worth knowing that you can use your will to reduce your Inheritance Tax rate. If you donate 10% or more of your estate to charity in your will, then the Inheritance Tax rate on the rest of your estate reduces from 40% to 36%. Take a look at our simple guide to writing a will.
Potentially exempt transfers for Inheritance Tax
‘Potentially exempt transfers’, also known as PETs, refer to all gifts that do not fall under the list of tax-free gifts. PETs are ‘potentially’ tax-free because whether or not inheritance tax is paid on them depends on when the gift is made.
This is the seven-year rule, meaning that if you give money, property, or possessions and live for seven years after making the gift, it will usually be exempt from Inheritance Tax.
A gift like this that ends up not being taxed can be described as a ‘successful PET’. However, if a person dies within seven years of giving a gift, it will be considered as part of their estate for Inheritance Tax purposes.
Usually, your tax-free allowance will consider gifts before it considers the remaining estate. For this reason, gifts are rarely taxed, unless the sum of the gifts exceeds the £325,000 tax-free IHT threshold.
Inheritance Tax 'taper relief'
Even if a gift becomes eligible for Inheritance Tax, it will not necessarily be taxed at the standard 40% rate. This is because of Inheritance Tax ‘taper relief‘.
Gifts made three to seven years before the gift-giver’s death are taxed on a sliding scale known as ‘taper relief’. Gifts made in the three years before the death are taxed at the full rate of 40%.
The table on the right shows the Inheritance Tax rate for gifts made in each of the years one to seven prior to the giver’s death.
Examples of IHT taper relief when gifting money to children
In the following hypothetical scenarios, we will see how much Inheritance Tax is paid. In all three of these situations, an individual is seeking to pass on some of their £500,000 estate in the form of gifts before their death. We will see how the timing and size of gifts affects how much tax ends up being paid.
It is worth keeping in mind that if a person with a £500,000 estate gave no money away as gifts, then they would have to pay tax on the whole of the sum between the £325,000 threshold and the £500,000 estate. That would mean paying 40% tax on the remaining £175,000 – a total of £70,000 in tax.
IHT Rates and Thresholds
Find out everything you need to understand and IHT rates and thresholds from our guide to Inheritance Tax Rates and Thresholds.
One to watch: From April 2027, a major change to inheritance tax rules will affect how pension pots are treated when you die. At the moment, most unused private pensions can be passed on tax-free, but soon they will be counted as part of your estate for Inheritance Tax.
If you would like advice about your circumstances in regards to making a gift, and whether or not it will be eligible for IHT, you can contact the Inheritance Tax Helpline on 0300 123 1072.
FAQs on Gifting Money To Children and Family
Can property be given as a tax-free gift?
No, gifting property is not automatically exempt from Inheritance Tax (IHT). Property is usually considered part of your estate.
However, there is some relief available. If you leave your home to a direct descendant (such as children or grandchildren), your tax-free allowance may increase by up to £175,000 through the residence nil-rate band. The exact amount depends on the value of the property and your share in it at the time of death.
What if there is no formal proof that a gift has been made?
It’s very important to keep clear and accurate records of any significant gifts you make.
Make sure you note:
- The value of the gift
- The date it was given
- Who received it
Without proper documentation, HMRC may question the timing and value of the gift, which could lead to disputes or unexpected tax bills for your estate or loved ones.
What happens if no will is left?
If you pass away without a valid will, your estate is distributed according to intestacy rules.
This means:
- Your assets may not go to the people you intended
- The way your estate is divided could affect how much Inheritance Tax is due
Having a will in place is one of the simplest ways to ensure your wishes are followed and to help with effective tax planning.
How much money can you gift to a family member tax-free?
In the UK, you can give away up to £3,000 per tax year tax-free. This is known as your Annual Exemption.
A few key points:
- The £3,000 limit is per year, not per person
- If you didn’t use last year’s allowance, you can carry it forward, allowing you to gift up to £6,000 in one tax year
Any gifts above this amount are usually classed as Potentially Exempt Transfers (PETs). These gifts can become tax-free if you live for seven years after giving them.
Do you need to pay inheritance tax on gifts you receive?
In most cases, you won’t need to pay tax on gifts you receive, as they are typically covered by the giver’s tax-free allowances.
However, if:
- The gift exceeds the available allowances, and
- The person who gave the gift passes away within seven years
Then Inheritance Tax may be due.
Usually, the recipient is responsible for paying the tax. If they are unable or unwilling to pay, the amount is then taken from the deceased person’s estate.
What to do next
Here’s a clear, no‑nonsense checklist you can use straight away.
Inheritance‑Tax gifts checklist:
Record‑keeping:
- Set up a gift log (date, amount, recipient, exemption used)
- Add any gifts made in the last seven years
- Check whether last year’s £3,000 annual exemption was used
- Note any regular payments you make that might qualify as maintenance gifts
Planning future gifts:
- List the gifts you want to make in the next 12–24 months
- Assign each planned gift to an exemption where possible
- For larger gifts, note the date they would become fully outside your estate (seven‑year rule)
- Decide whether to spread larger gifts over multiple tax years
Reviewing your estate position:
- Check whether your estate is likely to exceed the nil‑rate band
- Review whether the residence nil‑rate band applies to your property
- Consider whether leaving 10% or more to charity would reduce the IHT rate
Legal and financial housekeeping:
- Review your will to ensure it reflects your current intentions
- Document any significant gifts that were made informally
- Consider whether you need professional advice (e.g., complex assets, trusts, business property)
Communication:
- Tell your executors or family where your gift records are kept
- Explain any regular gifting plans so expectations are clear
Read our Guide to Inheritance Tax to discover how IHT really works, who pays it and simple steps that could save your family thousands when the time comes.
This article has been written using information from trusted organisations. Their guidance helps ensure the information here is accurate and reflects current UK law and best practice.
These resources from these organisations might also be helpful.
- Check on GOV.UK if an estate qualifies for the Inheritance Tax residence nil rate band and for more information on IHT.
- Estate planning specialists Honey Legal have supported us with the information in this page.
- The Money Helper website has a guide to Inheritance Tax on the UK.
