Tax & estate planning guide
Inheritance Tax and gifting rules
Giving wealth away during your lifetime can reduce what remains in your estate, but the Inheritance Tax rules depend on the type, value and timing of the gift — and whether you continue to benefit from it.
Immediate exemptions
Some gifts can be made without using the seven-year rule.
£3,000 annual exemption
You can generally give away a total of £3,000 each tax year using the annual exemption.
Unused exemption
Unused annual exemption can be carried forward for one tax year only.
Small gifts
You can generally make gifts of up to £250 per person each tax year, provided another allowance has not been used for the same person.
Wedding or civil partnership
Exempt limits are generally £5,000 for a child, £2,500 for a grandchild or great-grandchild and £1,000 for another person.
Qualifying gifts between spouses or civil partners can also be exempt, as can gifts to qualifying charities.
Regular gifting
Normal expenditure out of income can be a powerful exemption.
There is no fixed monetary ceiling where gifts qualify as normal expenditure out of income. HMRC requires the gifts to form part of your normal expenditure, be made from income and leave you with enough income to maintain your usual standard of living.
HMRC looks at the source of the money, the pattern of gifting and whether sufficient income remains after the gifts.
Regular payments towards a family member's living costs or savings can potentially qualify where the conditions are met. Good evidence of income, expenditure and the gifting pattern is important.
Potentially exempt transfers
Many outright gifts become exempt if you survive seven years.
Most lifetime gifts to individuals that are not covered by another exemption are potentially exempt transfers. If you survive for seven years after making the gift, no IHT is normally due on that gift.
If you die within seven years, the gift can use some or all of the available nil-rate band before the rest of the estate is assessed.
Exempt gifts can be outside the IHT calculation immediately. The rule is relevant to gifts that rely on survival to become exempt.
Taper relief
Taper relief reduces tax on certain gifts — not the value of the gift itself.
Where tax is actually due on lifetime gifts, the rate can reduce when death occurs more than three years after the gift.
Under 3 years
40% rate on the taxable gift.
3–4 years
32% rate.
4–5 years
24% rate.
5–6 years
16% rate.
6–7 years
8% rate.
7+ years
Normally no IHT on the outright gift.
Taper relief only matters where the cumulative non-exempt gifts have exceeded the available nil-rate band. It does not simply reduce every gift made between three and seven years before death.
Gift with reservation
You generally cannot give an asset away for IHT purposes while continuing to enjoy it as before.
If you give away an asset but continue to benefit from it, the gift-with-reservation rules can bring it back into your estate.
A common example is transferring a home to children but continuing to live there without paying a full market rent. GOV.UK states that, subject to the detailed rules, the property can remain part of the estate in these circumstances.
The practical use and benefit of the asset after the transfer matters.
Evidence
Keep a clear record of what you give away.
Your executors may later need to establish the gifts made before death. GOV.UK recommends keeping records of what was given, who received it, its value and the date of the gift.
For gifts claimed as normal expenditure out of income, retaining evidence of income and normal expenditure can also help demonstrate that the exemption conditions were met.
Inheritance Tax planning should not undermine your own retirement income, emergency reserves, care provision or financial security.
Estate planning
Thinking about passing wealth to your family?
We can help you consider gifting alongside your own long-term financial security, while identifying where specialist legal or tax advice is required.
Book a conversationThis guide is for general information only and is not personal tax, legal or financial advice. Inheritance Tax treatment depends on individual circumstances and rules can change. Larger gifts, trusts and complex estates can require specialist tax and legal advice. Current HMRC/GOV.UK gifting guidance checked on 16 September 2026.