Key facts (2026): UK IHT gifting rules allow you to give away £3,000 per year tax-free (annual exemption), plus £250 to unlimited individuals, plus wedding gifts within limits. Larger gifts are Potentially Exempt Transfers (PETs) — free of IHT if you survive 7 years. Gifts from income (regular gifts from surplus income) are exempt immediately with no 7-year requirement.
Gifting assets during your lifetime is one of the most effective ways to reduce your estate's inheritance tax liability. The rules are straightforward once you understand the key exemptions and the 7-year rule. Early planning significantly expands the options available — most strategies require years of lead time to be fully effective.
Annual and Small Gift Exemptions
Annual exemption: £3,000 per person per year. Any unused allowance from the previous tax year can be carried forward once — giving a maximum of £6,000 in one year. Small gifts: £250 to any number of individuals per year — cannot combine with the annual exemption for the same person. Wedding/civil partnership gifts: parent to child: £5,000; grandparent: £2,500; anyone else: £1,000. Normal expenditure out of income: gifts that form part of a regular pattern and are paid from surplus income (not capital) are immediately exempt with no limit — this is one of the most powerful but under-used IHT exemptions.
Potentially Exempt Transfers — The 7-Year Rule
Gifts above the annual exemption (other than those immediately exempt) are called Potentially Exempt Transfers (PETs). If you survive 7 years after making the gift, it falls completely outside your estate. If you die within 7 years, the gift is subject to IHT on a tapered scale: died within 3 years: 40% IHT on the gift (above nil rate band); 3–4 years: 32%; 4–5 years: 24%; 5–6 years: 16%; 6–7 years: 8%. Taper relief applies to the IHT due, not the value of the gift.
Gifts with Reservation of Benefit
If you give away an asset but continue to benefit from it — for example, giving your house to your children but continuing to live in it rent-free — HMRC classes this as a 'gift with reservation of benefit' and it remains in your estate for IHT purposes. To avoid this, you must pay market rent to the new owners, which has its own tax implications. The gift with reservation rules catch many well-intentioned family arrangements that have not been properly structured.
Our Verdict
Start gifting early — the 7-year clock only starts when a gift is made. Annual exemption gifting from age 60 onwards can remove significant assets from an estate over a 15–20 year period. The normal expenditure out of income exemption is particularly powerful for those with regular surplus income — it requires no 7-year wait and has no limit. Document all gifts carefully with dates and amounts to support executors and potentially HMRC.
Frequently Asked Questions
How much can I give away tax-free UK?
£3,000 per year (annual exemption) plus £250 to unlimited individuals plus wedding gifts within limits. Normal expenditure from income is exempt with no limit.
What is the 7-year rule for gifts and IHT?
Gifts above the annual exemption are Potentially Exempt Transfers — they fall outside your estate for IHT if you survive 7 years. Taper relief reduces the IHT charge for gifts made 3–7 years before death.
Can I give my house to my children to avoid IHT?
Only if you do not continue living in it rent-free — this triggers the gift with reservation rules. You must pay full market rent to the new owners for the gift to be effective for IHT purposes.
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Disclaimer: For informational purposes only. Verify with official sources before making decisions.
Last updated: April 2026 · Author: Chandraketu Tripathi
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