Making gifts during your lifetime can be an effective way to reduce the value of your estate for Inheritance Tax (IHT) purposes.
One of the most commonly used exemptions is the annual exemption. This allows an individual to give away up to £3,000 each tax year without the gift forming part of their estate for IHT purposes. If the exemption is not used in full, any unused amount can be carried forward to the following tax year, although only for one year. This means that someone who made no qualifying gifts in 2025-26 could potentially give away up to £6,000 in 2026-27 free of IHT.
There is also a useful exemption for small gifts. You can give as many gifts of up to £250 per person each tax year as you wish, provided no other exemption has been used for the same individual. This is known as the small gift allowance.
Special rules apply to wedding and civil partnership gifts. Parents can give up to £5,000 to a child tax-free, grandparents and great-grandparents can give up to £2,500, and anyone else can give up to £1,000. In many cases these exemptions can be combined with the annual exemption.
Another valuable relief covers gifts made out of surplus income. There is no fixed monetary limit, but the gifts must form part of normal expenditure, be made out of income rather than capital, and leave the donor with enough income to maintain their usual standard of living. This exemption can be very useful for individuals with excess pension or investment income who wish to help children or grandchildren on a regular basis. Keeping clear records is important, as HMRC may ask for evidence that the conditions have been met.
Gifts between spouses or civil partners are generally exempt from IHT, provided both parties are permanently domiciled in the UK. Gifts to charities are also normally exempt.
