Tax

Gifting Money in the UK: Tax Rules Every Family Needs to Know

SYM

Gifting money to family or friends in the UK can have inheritance tax (IHT) implications that most people never consider until it's too late. With IHT applying at 40% on estates above the threshold, understanding the gifting rules is essential for anyone wanting to pass wealth efficiently to the next generation.

Annual Gift Exemption

Every UK resident can give away up to £3,000 per tax year completely free of inheritance tax. This is the Annual Exemption. If you didn't use it last year, you can carry forward one year's unused exemption — giving you up to £6,000 in the current year. This allowance doesn't reset until 5 April each year.
  • •£3,000 per person per tax year — always IHT-free
  • •Carry forward one year of unused exemption (max £6,000)
  • •The exemption is per giver, not per recipient
  • •Married couples each get their own £3,000 allowance

Small Gifts Exemption

You can give any number of individuals up to £250 per year as a small gift, completely IHT-free. You can't combine this with the Annual Exemption for the same person — they're separate allowances. So you could give 20 different people £250 each (£5,000 total) completely tax-free under this rule.

The 7-Year Rule

Larger gifts above your exemptions are called 'Potentially Exempt Transfers' (PETs). If you survive 7 years after making the gift, it falls completely outside your estate for IHT purposes. If you die within 7 years, the gift may be subject to IHT on a sliding scale (Taper Relief): - 0–3 years: full 40% IHT rate - 3–4 years: 32% - 4–5 years: 24% - 5–6 years: 16% - 6–7 years: 8%

Gifts Out of Income

One of the most powerful and underused gifting rules: regular gifts made out of surplus income (not capital) are immediately IHT-free, with no limit. Requirements: the gifts must be regular (e.g., monthly), come from income (not assets), and not affect your normal standard of living. A grandparent who regularly contributes to a grandchild's Junior ISA each month can do so without any IHT implications.

Wedding Gifts

Wedding or civil partnership gifts benefit from specific IHT-free allowances: - Parents: up to £5,000 - Grandparents/great-grandparents: up to £2,500 - Anyone else: up to £1,000 These must be given before the ceremony.
Do I need to tell HMRC about gifts I give?+

Not for gifts within your exemptions. For larger PETs (potentially exempt transfers), HMRC doesn't need to be notified during your lifetime — but the executor of your estate must declare them on the IHT400 form if you die within 7 years.

Is a gift to a charity IHT-free?+

Yes — gifts to registered charities are always exempt from IHT, both during your lifetime and on death. Additionally, leaving 10%+ of your estate to charity reduces the IHT rate on the remainder from 40% to 36%.

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