UK Gift Allowances and IHT Exemptions 2026/27: How Much Can You Give Tax-Free?

UK Gift Allowances and Inheritance Tax: A 2026/27 Guide

Inheritance Tax (IHT) is charged at 40% on your estate above the nil-rate band (£325,000) when you die. However, the UK tax system provides numerous exemptions that allow you to give money and assets away during your lifetime completely free of IHT -- provided you know the rules.

This guide explains all the main gift exemptions available in 2026/27 and how they interact with the 7-year rule for larger gifts.

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How Gifts and IHT Interact

Any gift you make during your lifetime that falls outside the IHT exemptions is called a Potentially Exempt Transfer (PET). A PET only becomes exempt from IHT if you survive for 7 years after making it. If you die within 7 years, the gift may be added back to your estate and taxed accordingly (with taper relief reducing the rate after 3 years).

The exemptions below allow you to make gifts that are immediately exempt -- no need to survive for 7 years.

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The Annual Exemption: £3,000 Per Year

Every individual has an annual gift exemption of £3,000 per tax year. Gifts totalling up to £3,000 in a tax year are immediately exempt from IHT.

Key points:

• The £3,000 can go to one person or be split between multiple recipients
• It is per donor, not per recipient -- you and your spouse/civil partner each have £3,000
• If you do not use all of this year's exemption, you can carry it forward one year (only)

Carrying Forward

If you used none of your 2025/26 exemption, in 2026/27 you can give away up to £6,000 immediately exempt: £3,000 for 2026/27 plus £3,000 carried forward from 2025/26.

You cannot accumulate unused exemptions beyond one year. The oldest unused amount is applied first.

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Small Gifts: £250 Per Person

In addition to the annual exemption, you can give small gifts of up to £250 to any number of individuals in a tax year.

Rules:

• Each recipient can receive up to £250 from you in the tax year
• You cannot give someone £3,250 and claim both the annual exemption and the small gift exemption for the same person
• The £250 limit is per recipient, not in total

This exemption is useful for birthday and Christmas gifts to grandchildren, nieces, nephews, and friends. Twenty grandchildren, each receiving £250, would use £5,000 of IHT-exempt giving that sits entirely outside the annual exemption.

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Wedding and Civil Partnership Gifts

Gifts made in consideration of a marriage or civil partnership are exempt up to the following limits:

The gift must be made before the wedding or civil partnership ceremony to qualify. A gift made after the wedding does not qualify under this exemption (though it may still use the annual exemption).

If the wedding is called off, any gift already made under this exemption technically becomes a PET. This is rarely enforced but worth noting.

Parents of both the bride and groom each have their own £5,000 exemption. So both sets of parents could each give £5,000 -- totalling £20,000 in exempt wedding gifts from parents alone.

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Regular Gifts Out of Income

This is one of the most powerful and underused IHT exemptions. You can make regular gifts from your surplus income -- completely exempt from IHT, with no limit on the amount.

The conditions are strict:

1. The gifts must be made regularly (a pattern of giving, not ad hoc)
2. The gifts must come from income (not capital -- not from selling assets)
3. The gifts must not affect your normal standard of living (you must be able to afford them from your income alone)

What Counts as Income?

• Salary, pension, and rental income
• Investment income (dividends, interest)
• State Pension and annuity payments
• Income from trusts

Not capital gains, not the proceeds of selling investments or property.

Evidence HMRC Expects

If this exemption is claimed after your death, your executors will need to demonstrate the pattern of giving. Keep records:

• A spreadsheet or letter setting out your intention to make regular gifts
• Bank statements showing the regular transfers
• Evidence of your income and expenditure to show the gifts came from surplus income

Many estate planning professionals recommend creating a formal letter of intent, kept with your will.

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The 7-Year Rule for Larger Gifts

Gifts that fall outside all the above exemptions are Potentially Exempt Transfers (PETs). If you survive for 7 years, they become fully exempt. If you die within 7 years, they may be brought back into your estate.

Taper Relief

If you die between 3 and 7 years after making the gift, taper relief reduces the IHT rate on the gift:

Important: taper relief reduces the tax rate, not the amount of the gift that is counted. It only applies when the gift itself exceeds the nil-rate band. If the total of your PETs and estate is below £325,000, taper relief is irrelevant.

The Order of Gifts

Gifts are charged against the nil-rate band in chronological order, oldest first. This matters because:

• If you made large gifts in 2019 and 2021, the 2019 gift uses the nil-rate band first
• By the time the 2021 gift is assessed, the nil-rate band may already be exhausted
• The later gift faces the full 40% rate if you die within 7 years of making it

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Gifts with Reservation of Benefit

A gift is ineffective for IHT if you continue to benefit from it. HMRC calls this a gift with reservation of benefit (GROB).

Common examples:

• Giving your house to your children but continuing to live in it rent-free
• Giving investments but retaining the income from them

For the gift to be effective, you must genuinely give up the benefit. In the house case, you must pay a full market rent to the new owner.

If a GROB exists at the date of death, the asset is still included in your estate for IHT.

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Gifting to Charities and Political Parties

Gifts to UK registered charities are completely exempt from IHT -- both gifts made during lifetime and legacies in wills. There is no limit.

Additionally, if you leave at least 10% of your net estate to charity in your will, the IHT rate on the rest of your estate reduces from 40% to 36%. For large estates, this can result in the charity effectively "funding itself" through the tax saving.

Gifts to UK political parties also qualify for IHT exemption under certain conditions.

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Nil-Rate Band and Residence Nil-Rate Band

While not gifts per se, the nil-rate band and residence nil-rate band are the foundation of IHT planning:

• Nil-rate band (NRB): £325,000 -- frozen until at least April 2028
• Residence nil-rate band (RNRB): £175,000 -- applies where the main home passes to direct descendants (children, grandchildren)
• Transferable NRB -- unused NRB from a deceased spouse passes to the surviving spouse, potentially doubling to £650,000

A married couple with a family home can potentially pass £1 million to children with no IHT liability by combining transferable NRB (£650,000) and RNRB (£175,000 x 2).

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Summary

The key gift exemptions for IHT in 2026/27:

The 7-year rule governs all larger gifts. Use our inheritance tax calculator to model how your gifting strategy affects your estate's IHT position.