There is no separate gift tax in the UK on gifts of money to another person. You can give another person as much money as you want during your lifetime without an immediate tax charge (money put into a trust can be charged straight away). The main tax issue arises if you die within seven years of making a large gift, at which point inheritance tax (IHT) may apply.
For the wider cluster covering gifting, thresholds and planning strategies, use the main Inheritance Tax hub.
The Rules at a Glance
| Rule | Detail |
|---|---|
| Gift tax in the UK | No separate gift tax on money given to another person |
| Inheritance tax on gifts | Usually only applies if you die within 7 years of a gift to another person that exceeds exemptions (gifts into a trust and gifts you still benefit from work differently) |
| IHT rate | 40% (on the amount above the nil-rate band) |
| Nil-rate band | £325,000 — gifts above this may be taxed if you die within 7 years |
| Annual exemption | £3,000 per year, per person (can carry forward one year) |
| Small gifts exemption | £250 per recipient per year (unlimited recipients, but not for anyone you have used another allowance on) |
Tax-Free Gift Exemptions
Gifts That Are Tax-Free
The UK tax system draws a line between gifts that are exempt whenever you die and gifts that are subject to the 7-year rule. Getting the most from gifting means using the exempt routes first, every year, before relying on the 7-year clock.
One exemption with no upper limit is gifts from normal expenditure out of income, but it requires careful record-keeping. The small gifts exemption is also useful for making regular modest payments to multiple family members: for example, £250 each to several grandchildren at Christmas.
| Exemption | Amount | Rules |
|---|---|---|
| Annual exemption | £3,000/year | Per person. Unused allowance carries forward one year only |
| Small gifts | £250 per recipient | Unlimited number of recipients. Cannot be combined with another allowance for the same person |
| Wedding gift (parent) | £5,000 per child | Given on or shortly before the wedding or civil partnership |
| Wedding gift (grandparent) | £2,500 per grandchild or great-grandchild | Given on or shortly before the wedding or civil partnership |
| Wedding gift (anyone else) | £1,000 | Given on or shortly before the wedding or civil partnership |
| Gifts to spouse/civil partner | Unlimited | Exempt if you are legally married or in a civil partnership and they live in the UK permanently |
| Gifts to charity | Unlimited | Completely exempt |
| Normal expenditure out of income | Unlimited | Must come from income, be regular, and not reduce your standard of living |
| Maintenance of dependants | Unlimited | Reasonable support for a spouse or civil partner, a child under 18 (or in full-time education or training), or a dependent relative who cannot support themselves because of old age or infirmity |
Annual Exemption — Worked Examples
| Year | Annual exemption used? | Gift made | Tax-free amount |
|---|---|---|---|
| 2024/25 | No (carried forward) | — | — |
| 2025/26 | Yes — gave £6,000 to daughter | £6,000 | £6,000 (£3,000 current + £3,000 brought forward) |
| 2026/27 | Yes — gave £3,000 to son | £3,000 | £3,000 (current year only — nothing to carry forward) |
Husband and wife each have their own £3,000 allowance — so a couple can give away £6,000 per year (or £12,000 if both carry forward).
It is easy to let the annual exemption go unused. It does not accumulate beyond one year: if you do not use it, you lose it. A couple who have not made any gifts in recent years should start using this exemption immediately, every April. Over ten years, that is £60,000 given away completely outside their estate, even if both die the following day.
Note that you cannot split the annual exemption across multiple recipients and count it more than once — it is £3,000 per giver, not per recipient. If you give £1,500 to one child and £1,500 to another, that uses your full annual exemption.
The 7-Year Rule — How It Works
Any gift to another individual above your exemptions becomes a potentially exempt transfer (PET). The clock starts from the date of the gift.
| Time before death | IHT rate on the gift |
|---|---|
| 0 – 3 years | 40% |
| 3 – 4 years | 32% (taper relief) |
| 4 – 5 years | 24% |
| 5 – 6 years | 16% |
| 6 – 7 years | 8% |
| 7+ years | 0% — completely outside your estate |
Important Points
- Taper relief reduces the tax rate on the gift, not the value
- Taper relief only applies to gifts that exceed the nil-rate band (£325,000)
- If total gifts in the 7 years before death are under £325,000, they use up NRB but no tax is due on the gifts themselves — the impact is that less NRB is available for the remaining estate
- Each gift has its own 7-year clock
The Taper Relief Misconception
Taper relief is widely misunderstood. It does not cut the tax on every gift made 3 to 7 years before death. It only reduces tax where the gifts made in the 7 years before death add up to more than the tax-free threshold.
Taper relief applies to the tax rate, not the value of the gift. And it only kicks in when gifts in the 7 years before death exceed the nil-rate band (£325,000). Where gifts in the 7 years before death fall within the nil-rate band, no tax is due on the gifts themselves, but they reduce the nil-rate band available to the rest of the estate.
In practical terms: if you make £200,000 of gifts in the 7 years before death, those gifts attract no IHT directly. But your executors will have £125,000 less nil-rate band to offset against the rest of your estate. This is a meaningful but different point to the one most people think taper relief covers.
Worked Example — 7-Year Rule
| Detail | Amount |
|---|---|
| Gift made | £400,000 to daughter in January 2020 |
| Nil-rate band | £325,000 |
| Amount above NRB | £75,000 |
| If donor dies in June 2022 (2 years 5 months) | IHT at 40% on £75,000 = £30,000 |
| If donor dies in June 2024 (4 years 5 months) | IHT at 24% on £75,000 = £18,000 |
| If donor dies in January 2027 (7+ years) | £0 — gift fully outside estate |
Gifts from Normal Expenditure Out of Income
This is one of the most valuable — and overlooked — IHT exemptions. See our dedicated gifts from income exemption guide for detailed examples and HMRC compliance tips. There is no limit on how much you can give away — as long as:
| Condition | What it means |
|---|---|
| Comes from income | Must be from your regular income (salary, pension, rental income, dividends) — not from savings or capital |
| Regular pattern | Must be part of a settled pattern of giving (regular payments or a firm commitment to keep giving) |
| Does not reduce your standard of living | After making the gifts, you can still afford your normal expenses |
Each condition matters. The “comes from income” rule catches people who try to use this exemption for large payments from capital or from income saved up over several years, which would not usually qualify. HMRC sets no fixed period for a pattern, though three to four years is normally seen as reasonable, and a first gift can count if there is evidence it was meant to begin a pattern. The standard of living test asks whether your income, after the gifts, was still enough to cover your usual living costs. You do not have to have paid those costs from income.
Pensioners with surplus pension income can often use this exemption. A retired couple drawing £40,000 per year in pension income, spending £28,000 on living costs, could potentially gift the £12,000 surplus annually (completely outside their estate, indefinitely) without the 7-year rule applying at all.
Common Qualifying Examples
| Gift | Why it qualifies |
|---|---|
| Monthly £500 to a child’s savings account | Regular, from income, pattern established |
| Paying grandchildren’s school fees each term | Regular, from pension income |
| Annual gift of £10,000 to each child at Christmas | Annual pattern, from surplus income |
| Paying life insurance premiums for your children | Regular, from income, for their benefit |
Record-Keeping
Keep a gift diary (a simple spreadsheet or even a paper log) with every gift you make. This does not need to be complex, but it must be complete. When you die, your executors will need to work out all gifts made in the 7 years before death, and report them on the HMRC IHT forms where full details of the estate are required. They can only do this if you have left a record.
HMRC does not expect perfection, but they do expect honesty. If exemptions are claimed without evidence (particularly for the normal expenditure out of income route, which requires proof of income and pattern), HMRC can challenge them. For the normal expenditure exemption, it is for your executors to show that the conditions are met.
| Detail to record | Example |
|---|---|
| Date | 1 March 2026 |
| Recipient | Daughter — Sarah |
| Amount | £500 |
| Source of funds | Monthly pension income |
| Exemption relied on | Normal expenditure out of income |
| Pattern | Monthly — 12th consecutive month |
Your executors will need this evidence when completing IHT forms. Without records, your executors may be unable to work out what you gave.
Gifting Money for a House Deposit
For gifting property itself rather than cash, see our guide on gifting property to children.
Family gifts are one way buyers raise a deposit. For parents and grandparents with estates above the IHT threshold, a gift towards a deposit can also be part of estate planning.
The IHT treatment of a cash gift for a deposit is exactly the same as any other cash gift. The £3,000 annual exemption covers the first tranche; amounts above that are potentially exempt transfers subject to the 7-year rule. The exemptions that can apply are the ones that cover gifts generally, such as the annual exemption, wedding gifts and normal expenditure out of income. The key practical difference is that many mortgage lenders ask for formal documentation.
| Question | Answer |
|---|---|
| Is the gift taxable? | No immediate tax. 7-year rule applies if above exemptions |
| Does my child pay tax on receiving it? | Any IHT due is usually paid by the estate. It can fall on the recipient only if you die within 7 years and your gifts in that time total over £325,000 |
| Will it affect the mortgage application? | Yes: you must tell the lender, and many lenders ask for a gifted deposit letter |
| What’s in the letter? | Confirms money is a gift not a loan, donor has no interest in the property, and it does not need to be repaid |
| Can I loan the money instead? | Many lenders will not accept a loan as a deposit, and the gifted deposit letter confirms the money is not a loan. A loan is not covered by the gift rules above, so ask a tax adviser how it would be treated for IHT |
| Anti-money laundering checks? | The conveyancer will ask for the source of funds — have bank statements ready |
Gifted Deposit Letter Template
A gifted deposit letter should include:
| Element | Detail |
|---|---|
| Full name of person gifting | Your full legal name |
| Relationship to buyer | Parent, grandparent, etc. |
| Amount of gift | Exact figure |
| Declaration | “This is a gift. I have no interest in the property. The money does not need to be repaid.” |
| Signature | Signed by the person giving the gift |
Lenders ask for this letter to confirm that the money is a gift that does not have to be repaid and that the person giving it will have no share or interest in the property. Signing it also records that you have no claim on the property.
From an IHT perspective, keep a copy of the letter in your gift diary. It records the date, amount, and recipient — exactly what your executors need.
Trusts for Children
If you want to give money to children but keep some control, or if you are uncomfortable with the idea of an 18-year-old receiving a large sum outright, a trust may be appropriate.
The choice of structure depends primarily on two things: how much control you want to retain, and when you want the child to be able to access the money. A bare trust gives the child full access at 18 (16 in Scotland) with no ability to restrict it further. A discretionary trust gives trustees full discretion over when and how much to distribute, but comes with upfront IHT considerations if amounts exceed the nil-rate band.
A Junior ISA suits smaller ongoing contributions because of its yearly savings limit, while a bare trust or discretionary trust is more relevant for larger one-off gifts where flexibility or control matters.
| Trust type | Best for | Control | Tax |
|---|---|---|---|
| Bare trust | Children over 18 (or approaching 18) | Low, child can access at 18 (16 in Scotland) | Gift falls under 7-year rule |
| Junior ISA | Tax-free savings for under-18s | Moderate — child accesses at 18 | No tax on growth |
| Discretionary trust | Keeping control over when/how money is distributed | High: trustees decide | Uses NRB; 20% lifetime charge above £325,000 if the trustees pay (40% if you die within 7 years) |
| Child Trust Fund | If opened before 2011 | Low — child accesses at 18 | No tax on growth |
Related: Trusts Explained | Junior ISA Guide
Gifts to Grandchildren
All the same rules apply — see also our dedicated guide on gifting money to grandchildren for grandparent-specific strategies. Additional points:
Grandparents with pension income they do not need for living costs may be able to use the normal expenditure out of income exemption. Paying school fees or university costs directly from surplus pension income can take money out of the estate with no 7-year clock and no set limit, provided the payments are normal, come from income and leave you able to meet your usual living costs.
Wedding gifts are another underused tool. A grandparent can give each grandchild £2,500 entirely tax-free as a wedding gift — and if both grandparents give, that is £5,000 per grandchild, exempt immediately.
| Strategy | Benefit |
|---|---|
| Use both grandparents’ annual exemptions | £6,000 per year tax-free per couple |
| Pay into Junior ISA (max £9,000/year) | Tax-free growth |
| Pay school fees from income | Normal expenditure exemption — potentially unlimited |
| Wedding gift exemption | £2,500 per grandparent |
| Specified Adult Childcare Credit (a National Insurance credit, not a gift exemption) | A parent’s Child Benefit NI credit can be transferred to a grandparent who cares for a child under 12 |
Common Mistakes
Two common problems with gifts are missing records and mixing up which rule applies to which gift. The person dealing with your estate has to work out what you gave in the 7 years before your death, so missing records make that harder.
One rule to watch is the “gift with reservation”. Giving your home to your children while you continue to live in it is one example. The home still counts towards the value of your estate.
| Mistake | Consequence |
|---|---|
| Not keeping records of gifts | Executors may be unable to show an exemption applies, so HMRC may charge IHT |
| Giving away your home but continuing to live in it | Gift with reservation — stays in your estate |
| Not using the annual exemption each year | An unused exemption can only be carried forward for one tax year, then it is lost |
| Forgetting the spouse has their own exemptions | Missing £3,000 per year from the other partner |
| Assuming gifts to children are automatically tax-free | Only up to exemption limits — 7-year rule applies above |
| Not telling your executors about gifts | Executors could make incorrect IHT returns |
Pensions and Inheritance Tax — Changes from April 2027
From 6 April 2027, most unused pension pots will be included in your estate for inheritance tax purposes. This is a significant change: currently, most pensions sit outside your estate and are used as an IHT planning tool.
If you are considering drawing from your pension to fund gifts now, rather than leaving unused pension funds to heirs, the picture is changing. Read the full guide on pensions and IHT from April 2027 before making decisions.
Action Checklist
The sooner you start, the more effective gifting becomes. The annual exemption resets each 6 April, and an unused year can be carried forward for one tax year only, so delay can cost you allowance. The 7-year clock on larger gifts also starts from the date of each gift, so earlier gifts have a greater chance of falling fully outside your estate.
If your estate is likely to be above the nil-rate band (£325,000 for a single person, or up to £1 million for a couple who leave a home to their children or grandchildren and can claim the residence nil-rate band), it is worth reviewing your gifting position annually.
| Action | Done? |
|---|---|
| Check whether your estate might be above IHT thresholds | ☐ |
| Start using £3,000 annual exemption every year (each spouse) | ☐ |
| Consider regular gifts from income (and document them) | ☐ |
| Start a gift diary with dates, amounts, recipients, and exemptions used | ☐ |
| Tell your executors about gifts you have made | ☐ |
| Review your will alongside your gifting strategy | ☐ |
| Take professional advice if your estate may be above the thresholds that apply to you (up to £500,000 single or £1 million couple). See IHT planning guide | ☐ |
Related Guides
- Inheritance Tax Guide UK
- Inheritance Tax Threshold 2026/27 — Nil-Rate Band Explained
- Residence Nil-Rate Band Explained
- Gifts from Income Exemption Explained
- Taper Relief on Gifts — How It Works
- Gift Tax Rules UK — How Much Can You Give Tax-Free?
- Gifting Money to Grandchildren Tax-Free
- Gifting Property to Children UK
- Gifting Your House to Your Children to Avoid IHT
- Gifting Shares to Children — IHT Rules
- Life Insurance in Trust to Avoid IHT
- Discretionary Trusts and IHT Explained
- Inheritance Tax Planning Guide UK 2026
- How to Avoid Inheritance Tax Legally UK
- IHT Calculator UK 2026/27
- Pensions and IHT After April 2027
- Saving for a child
- Junior ISA Guide UK
- Trusts Explained UK
- How to Write a Will Without a Solicitor