How Much Money Can I Gift Tax-Free?

Gifting is the most straightforward way to reduce a future inheritance tax bill, and several allowances let you give money away with no strings and no seven-year wait. Used consistently, these modest-sounding exemptions add up to serious sums over time. Our guide to gifting money to reduce inheritance tax covers each one in depth.

The cornerstone is the annual exemption of £3,000 per tax year. Anything within it leaves your estate immediately. If you did not use last year’s exemption you can carry it forward one year only, so a couple who have not gifted before could pass on up to £12,000 straight away and £6,000 every year thereafter.

These allowances reward consistency more than grand gestures. A couple using the annual exemption every year for two decades would move £120,000 out of their estate, sheltering up to £48,000 of tax, without a single seven-year clock to worry about, and without a penny of it ever being at risk of a failed gift. Layer the wedding-gift and small-gift allowances on top, and the routine giving most grandparents do anyway can quietly do a great deal of the work.

The most powerful exemption is often overlooked

• 1

  Annual exemption, £3,000 a year

  Give up to £3,000 each tax year free of IHT, or up to £6,000 if you carry forward one unused year. Available to each individual.

• 2

  Small gifts, £250 per person

  Give £250 to as many different people as you like each year. You cannot combine it with the annual exemption for the same person.

• 3

  Wedding gifts

  Give £5,000 to a child, £2,500 to a grandchild or £1,000 to anyone else on the occasion of their marriage or civil partnership.

• 4

  Gifts from surplus income

  Make regular gifts out of income, not capital, that do not reduce your standard of living. Unlimited in amount if properly documented.

• 5

  Gifts to spouse or charity

  Gifts to a UK-domiciled spouse or civil partner, and to registered charities, are exempt without limit.

The normal expenditure out of income exemption is the hidden gem. If you have more income than you need, perhaps a generous pension, you can give the surplus away regularly with no upper limit and no seven-year clock. The conditions are strict: the gifts must come from income rather than capital, form a settled pattern, and leave you able to maintain your usual standard of living. Keep a simple record of income, outgoings and the gifts, because your executors will need to prove the pattern to HMRC.

Bigger gifts and the seven-year rule

Beyond these exemptions, there is no cap on generosity. A larger gift is a potentially exempt transfer: it drops out of your estate entirely once you survive seven years, and if you die within that window, taper relief can still reduce the tax on the excess above your nil-rate band. This is the engine behind most family gifting plans, see our answer on what happens if you die within seven years of a gift for the detail.

Common mistakes that cost families money

The exemptions are generous, but small slips can undo them. A frequent error is giving away capital and assuming it leaves your estate at once, most gifts above the exemptions do not, and instead depend on the seven-year rule. Another is giving away money you may later need, then finding yourself short in retirement or in ill health; you cannot ask for a genuine gift back, and a gift you can still call on may not count as given away at all. People also mix up the £250 small-gifts exemption and the £3,000 annual exemption: you cannot use both on the same person in the same year.

A more subtle trap is failing to distinguish income from capital when using the surplus-income exemption. Selling investments to fund gifts is a gift of capital, not income, and will not qualify. And because the value of a gift is fixed at the date it is made, giving assets that later grow strongly, rather than cash, can be very efficient, moving future growth out of your estate as well. Getting these details right is exactly where planning pays for itself.

Gifting works best as part of a wider plan alongside allowances, trusts and your will. If you would like it modelled against your own income and estate, the inheritance tax planning service can introduce you to an independently vetted, FCA-regulated adviser, and our guide to reducing inheritance tax legally puts gifting in context.

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