What counts as a gift for inheritance tax purposes?
For inheritance tax, a gift is anything you give away during your lifetime that leaves your estate worth less than it was. Cash, property, shares, jewellery, and paintings all count. So does selling something for less than its market value. Sell a flat to a relative for £50,000 under what it's worth, and HM Revenue and Customs (HMRC) treats that £50,000 as a gift.
Plenty of things that don't feel like gifts can still count. Clearing someone's credit card bill can count. So can adding someone's name to the deeds of a property you own, or writing off a loan to a family member.
Giving away assets rather than cash raises a second question, about capital gains tax. Our guide to gifting property, shares, or investments covers that side.
Which gifts are exempt from inheritance tax?
Exempt gifts are outside inheritance tax from the day you make them, so the seven-year clock never starts. Some exemptions depend on who receives the gift. Others depend on the amount, the occasion, or where the money came from.
The widest exemptions are for gifts to your spouse or civil partner, which usually have no upper limit, and gifts to UK charities, qualifying political parties, and national institutions such as museums and universities. Gifts between spouses or civil partners are usually exempt without limit. However, a lower limit can apply where you are a long-term UK resident but your spouse or civil partner is not. Specialist advice may be needed where either person has an overseas or international residence history.
For the 2026/27 tax year, the main exemptions are:
Exemption
|
How much?
|
What you need to know
|
What to keep
|
| Spouse or civil partner |
Usually unlimited |
A lower limit can apply if they aren't treated as a long-term UK resident |
Date, value, and who received it |
| UK charities, qualifying political parties, and national institutions |
Unlimited |
The organisation must qualify |
Receipt or acknowledgement |
| Annual exemption |
£3,000 per person, per tax year |
You can carry forward one unused year |
A running total for each tax year |
| Small gifts |
£250 per recipient, per tax year |
Can't be combined with another exemption for the same person |
A list of who received what, and when |
| Wedding or civil partnership |
£5,000 to your child, £2,500 to a grandchild or great-grandchild, £1,000 to anyone else |
Given on or shortly before the day, and the ceremony goes ahead |
The date of the ceremony and your relationship to the couple |
| Regular gifts from surplus income |
No fixed limit |
Regular, paid from income (not capital), and you can keep your usual standard of living |
A yearly record of income, spending, and gifts |
How do the annual, small-gift, and wedding exemptions work?
You can give up to £250 to any one person in a tax year as a small-gift exemption, and it won't count for inheritance tax. You can do this for as many different people as you like. So you could give £250 each to 20 nieces, nephews, godchildren, or friends, £5,000 in total, and all of it would be exempt.
If you give them £400, the small-gift exemption doesn't apply at all, not even to the first £250. The whole £400 has to fit under another exemption instead, usually your annual exemption. That's because the £250 exemption can't be combined with any other for the same person. On the plus side, you can use it for as many different people as you , each tax year.
The annual exemption, often called the annual gift allowance, is £3,000 per person, per tax year, which runs from 6 April to 5 April. You can split it however you want. If you didn't use all of last year's, the leftover rolls forward, but only for one year, and only once this year's £3,000 has been used. Someone who gave nothing last year could give £6,000 this year, and a couple in the same position could give £12,000 between them.
Wedding and civil partnership gifts have their own limits, provided you give on or shortly before the day and the ceremony goes ahead:
- £5,000 to your child
- £2,500 to a grandchild or great-grandchild
- £1,000 to anyone else
These can sit on top of your annual exemption for the same person, though not on top of the £250 one. So, a parent could give their child £8,000 in the year of the wedding, or £11,000 if last year's annual exemption is unused.
Giving more than these exemptions doesn't mean tax is due straight away on the amount above the exemption. If it's an outright gift to a person, there's usually no inheritance tax to pay when you make the gift, and then the amount above the exemption becomes fully exempt if you live for another seven years.
When can regular gifts from income be exempt?
Regular gifts from surplus income can be exempt with no fixed limit if:
- They're regular: there's an established pattern or intention to create one.
- They come from income: for example, earnings, pensions, rent, dividends or interest, rather than savings or capital.
- You can afford them: you can maintain your usual standard of living after making the gifts.
Income can include earnings, pensions, rent, dividends, and interest. Selling investments or drawing on savings to fund the gifts would usually rule them out.
A standing order towards a grandchild's university costs might qualify, as might paying the premiums on a life insurance policy written for someone else if relevant conditions are met. The amounts can vary from year to year, as long as there's a recognisable pattern. There's no set number of payments needed to establish one, as HMRC looks at the facts of each case. Even a first payment can qualify if there's good evidence you meant it to be the start of a series.
Your standard of living is judged against your own circumstances, not anyone else's. It may not stay the same, either: care costs later in life could change the picture.
The executors of your will make the claim for this exemption after your death, so the evidence has to come from you. They'll need to show HMRC what you earned, spent, and gave, year by year. A simple annual note does most of that work for them.
How do the seven-year rule and retained benefit affect gifts?
If an outright gift to a person isn't covered by an exemption, there's usually no inheritance tax to pay when you make it. If you live for another seven years, the gift becomes fully exempt. This type of gift is known as a potentially exempt transfer (PET). If you pass away sooner, it may be taken into account in working out the tax on your estate.
Our guide to the seven-year rule and potentially exempt transfers explains how that works in detail.
Keeping a benefit is different. If you give something away but carry on using or benefiting from it, it can be treated as though you still own it, however long you live. This is known as a gift with reservation of benefit. The most familiar example is giving away your home while continuing to live there rent-free.
Gifts into most trusts follow their own rules, set out in our guide to trusts.
What records should you keep?
Think of your records as a note to your executors. They may need to account for the gifts you made in at least the seven years before your death, and they won't be able to ask you about any of them.
For each significant gift, write down the date, what it was, its value, who received it, and which exemption you're relying on. Then keep the evidence:
- Bank statements or transfer confirmations
- Valuations of non-cash gifts at the date you gave them
- A running record of how you've used your annual exemption, including anything carried forward
- For regular gifts from income, a yearly summary of income, spending, and gifts
- For wedding gifts, the date of the ceremony and your relationship to the couple
Store it all with your will, and tell your executors where it is.
Four checks before making a substantial gift
Before a larger gift, these four questions will show you which rules you're dealing with. They won't give you a personal answer, but they'll help you work out what to ask.
1. Is it actually a gift? Anything that leaves your estate worth less can count, including selling something for less than its market value.
2. Is it covered by an exemption? Look at who's receiving it, how much it is, the occasion, and where the money comes from.
3. If not, which timing rule applies? An outright gift to a person is usually a PET and the 7-year rule starts. Retain a benefit, or give into a trust, and different rules apply.
4. Can you comfortably afford it, and does it fit your plans? The tax rules are the easy part to look up. Whether you can comfortably afford it, not just this year but in 20 years' time, is harder. And once an outright gift is made, it usually can't be taken back. Think about the income you'll need later, the flexibility you want to keep, whether you'd still want to use what you're giving away, and how the gift sits with your will.
If you're thinking of helping children or grandchildren, our guide to gifting money to children and grandchildren goes into the family side. And if you're wondering whether to pass on wealth sooner rather than later, our article on living inheritance looks at timing and purpose.
When might professional advice help?
For small, occasional gifts, the rules are often straightforward. Professional advice tends to help most as the amounts or the complexity grow. That might mean planning a large or regular gift, relying on the gifts-from-income exemption, giving away assets rather than cash, or hoping to keep some link to what you give. A family business or overseas connection can add further layers. Advice can't remove every uncertainty, but it can help you decide, with the full picture in your mind.
A financial planner can help you test whether a gift is affordable and see how it sits within your longer-term plans. They can work with tax and legal specialists where needed. Our guide on when to seek inheritance-tax planning advice sets out who does what.
Bringing gifting rules into a wider family plan
Most inheritance-tax gifting rules turn on whether a gift is covered by an exemption. If it isn't, the questions become whether you live another seven years and whether you've stopped benefiting from it. The exemptions go further than the £3,000 headline suggests, particularly for regular gifts from surplus income. Still, a gift has to work for you as well as for the tax rules: affordable now, affordable later, and properly recorded.
If you're weighing up larger or regular gifts, our Inheritance Tax Planning and Financial Planning teams can help you look at how they fit with your income, your estate, and your family's plans.
