Gifting Money in the UK 2026 — Tax Rules, Limits and the 7-Year Rule
There is no gift tax in the UK. But gifts can affect your Inheritance Tax liability. You can give away unlimited cash gifts during your lifetime — but if you die within 7 years, some gifts may be included in your estate. Here's the complete guide.
Is there a gift tax in the UK?
Unlike many countries, the UK does not have a specific gift tax. When you give money or assets to another person during your lifetime, neither the giver nor the recipient pays tax on the transaction at the time of the gift.
However, gifts can have Inheritance Tax (IHT) consequences if you die within 7 years of making them. IHT is charged at 40% on the value of your estate above the nil-rate band (£325,000 in 2026/27), and gifts made in the 7 years before death may be added back to your estate value.
Understanding the exemptions is key to effective estate planning — particularly as IHT thresholds have been frozen (with the nil-rate band unchanged at £325,000 since 2009, and frozen until at least 2030).
Annual Exemption — £3,000 per year
Every individual can give away up to £3,000 per tax year as gifts that are immediately exempt from IHT — regardless of who receives them. These gifts fall outside your estate immediately, with no 7-year rule required.
Key points:
- The £3,000 can go to one person or be split across multiple recipients.
- Carry-forward rule: if you did not use your full £3,000 in the previous tax year, you can carry forward the unused amount to this year. This allows a maximum of £6,000 in a single year (using this year's £3,000 plus last year's £3,000).
- You can only carry forward one year — unused allowances from earlier years are lost.
- Married couples/civil partners each have their own £3,000 Annual Exemption, potentially giving £6,000 (or £12,000 with carry-forward) jointly.
Small gifts exemption — £250 per person
You can give unlimited small gifts of up to £250 per person per tax year to as many individuals as you like, with no IHT implications.
Important rule: the small gifts exemption cannot be combined with the Annual Exemption for the same recipient. If you give someone £3,000 using your Annual Exemption, you cannot also give them a further £250 small gift in the same tax year. However, if you give someone £250 using the small gifts exemption, the Annual Exemption is still available for someone else.
Wedding and civil partnership gifts
Gifts made on or shortly before a wedding or civil partnership registration qualify for additional specific exemptions:
| Relationship to recipient | Exempt amount |
|---|---|
| Parent | £5,000 |
| Grandparent | £2,500 |
| Either party to each other | £2,500 |
| Any other person | £1,000 |
These exemptions are per event — you can use them once per wedding. They must be given before or on the wedding day (gifts after the ceremony do not qualify). If the wedding is called off, the exemption lapses.
Normal expenditure out of income — the unlimited exemption
This is one of the most powerful (and underused) IHT exemptions available. Gifts qualify as normal expenditure out of income if all three conditions are met:
- The gifts are made as part of a regular pattern (not one-off)
- They are funded from your income (not capital)
- After making the gifts, you still have enough income to maintain your normal standard of living
Unlike PETs, gifts that meet these criteria are immediately exempt from IHT — no 7-year rule, no taper. There is no limit on the amount.
Example: A retired person with a final salary pension of £50,000/year and living costs of £30,000/year has £20,000/year of surplus income. They make regular monthly transfers of £1,500 to their adult children. Provided this is regular, evidenced, and leaves them able to live normally, these transfers are entirely exempt from IHT.
Evidence: HMRC requires evidence that the pattern, income source, and living standard tests are met. Use form IHT403 as a guide and keep records of:
- Annual income from all sources
- Annual expenditure (living costs)
- The gifts made (date, amount, recipient)
This exemption rewards planning ahead — a one-off large gift is not "normal expenditure out of income" even if funded from income.
Potentially Exempt Transfers (PETs) and the 7-year rule
A Potentially Exempt Transfer (PET) is any outright gift to an individual (or to certain trusts from April 2006) that does not qualify for an immediate exemption. PETs are:
- Immediately tax-free if the donor survives 7 years from the date of the gift
- Chargeable to IHT (at up to 40%) if the donor dies within 7 years
PETs are cumulative: HMRC adds up all PETs made in the 7 years before death and stacks them on top of the estate value when calculating IHT.
Taper relief on PETs
If you die between 3 and 7 years after making a PET, taper relief reduces the IHT due on that gift:
| Years between gift and death | IHT rate on gift |
|---|---|
| 0 to 3 years | 40% (full rate) |
| 3 to 4 years | 32% (20% taper) |
| 4 to 5 years | 24% (40% taper) |
| 5 to 6 years | 16% (60% taper) |
| 6 to 7 years | 8% (80% taper) |
| 7+ years | 0% (fully exempt) |
Important: Taper relief reduces the IHT rate on the gift itself — but only after the nil-rate band (£325,000) has been used up. If the gift is within the nil-rate band, there is no taper to apply because there is already no IHT to pay.
Ordering of gifts for IHT purposes
HMRC uses the 7-year rule on a rolling basis. The most recent gifts are charged first against the nil-rate band. Older gifts (even if within 7 years) are stacked below.
Chargeable Lifetime Transfers (CLTs) — gifts into trusts
Gifts into most types of trust are not PETs — they are Chargeable Lifetime Transfers (CLTs). CLTs are taxed at the time of the gift if they exceed the nil-rate band:
- First £325,000 of CLTs in 7 years: 0%
- Above £325,000: 20% IHT (half the death rate) at the time of the gift
If the donor dies within 7 years, a further 20% may be due to bring the total to 40%.
Trusts also face their own ongoing IHT charges — a 10-year periodic charge of up to 6% on the trust value, and an exit charge when assets leave the trust. Trust IHT planning is complex and requires specialist legal advice.
Gifts with reservation of benefit (GROB)
A Gift and Retained Benefit (GROB) is a gift where you continue to benefit from the asset after giving it away. The classic example is gifting your home to your children while continuing to live in it rent-free.
GROBs do not escape IHT — the asset remains in your estate as if you had never given it away. The 7-year rule does not apply. Even if you live 30 more years, the house stays in your estate.
To avoid GROB status, you would need to pay a full market rent to the new owners (which is usually not the goal) or vacate the property entirely.
Pre-owned Asset Tax (POAT) is a separate annual income tax charge that can apply in certain arrangements designed to circumvent GROB rules. HMRC takes an aggressive approach to GROB-avoidance structures.
Gifts to charity
Gifts to UK registered charities are fully exempt from IHT — during your lifetime and on death.
Additionally, if you leave at least 10% of your "net estate" (the amount above the nil-rate band) to charity in your will, the IHT rate on the remaining estate reduces from 40% to 36%. This reduces the IHT bill and increases the charitable gift simultaneously.
Example (approximate):
- Estate value: £600,000
- Nil-rate band: £325,000
- Taxable estate: £275,000
- Without charitable gift: IHT = £275,000 x 40% = £110,000
- 10% to charity (£27,500): IHT on remaining £247,500 x 36% = £89,100 — and charity receives £27,500
Total received by family: £110,400 vs £110,000 (almost the same, despite the charitable gift).
Overseas gifts
The UK IHT rules apply to UK domiciled individuals regardless of where assets are located. If you are UK domiciled (or "deemed UK domiciled" — 15 of the last 20 years resident in the UK), your worldwide estate is subject to IHT, and worldwide gifts are subject to the 7-year rule.
Non-UK domiciled individuals are only subject to IHT on UK-situated assets, so gifts of non-UK assets are generally outside the scope of UK IHT.
From April 2025, the government moved to a residence-based IHT system in place of domicile for many purposes — consult a specialist for your specific situation if you have overseas connections.
Record-keeping
Keep records of all significant gifts, including:
- Date of gift
- Amount or value
- Recipient's name and relationship
- Evidence of funding source (income vs capital)
- Any exemption applied (Annual Exemption, wedding gift, normal expenditure out of income)
These records are needed by your executors when applying for probate and completing the IHT400 return after your death. Without records, HMRC may challenge the treatment of gifts.
Related calculators
The income tax calculator can help you assess whether you have sufficient surplus income to make regular gifts qualifying for the normal expenditure out of income exemption.
Frequently asked questions
Is there a gift tax in the UK?
No. The UK does not have a gift tax in the way some countries do. There is no tax on giving or receiving a cash gift in your lifetime. However, gifts can reduce your estate and affect your Inheritance Tax (IHT) liability if you die within 7 years of making them.
How much can I give as a gift tax-free in 2026?
You can give away up to £3,000 per year as your Annual Exemption — free of any IHT implications. You can also carry forward one unused year, potentially giving £6,000 in a single year. Small gifts of up to £250 per person are also exempt (but cannot be used on the same person as the Annual Exemption).
What is the 7-year rule for gifts?
If you make a Potentially Exempt Transfer (PET) — a gift to an individual — and survive 7 years from the date of the gift, it becomes fully exempt from IHT. If you die within 7 years, the gift may be added back to your estate and taxed. Taper relief reduces the IHT charge on gifts made 3-7 years before death.
Can I give my child money to buy a house tax-free?
Yes, you can give your child any amount of money. The gift itself is not taxed. If it exceeds the Annual Exemption (£3,000 per year), it becomes a PET and must survive 7 years to be fully exempt from IHT. There is no UK stamp duty or gift tax on cash transfers between family members.
What is normal expenditure out of income?
Normal expenditure out of income is a powerful IHT exemption that allows you to make unlimited regular gifts from your surplus income — gifts that do not reduce your standard of living. Qualifying gifts are immediately exempt from IHT regardless of the 7-year rule. You must show a regular pattern of gifts funded from income, not capital.
What is a gift with reservation of benefit?
A gift with reservation of benefit (GROB) is a gift where the donor retains some use or benefit from the asset — for example, giving away your home but continuing to live in it rent-free. GROB assets remain in your estate for IHT purposes regardless of how long ago you made the gift. The 7-year rule does not apply.
Are gifts to charity exempt from IHT?
Yes. Gifts to UK registered charities are completely exempt from IHT — both during your lifetime and on death. Additionally, if you leave at least 10% of your net estate to charity in your will, the IHT rate on the remaining estate reduces from 40% to 36%.
Try the calculators
Related reading
Inheritance Tax Planning Strategies for 2026/27 — Act Before April 2027
IHT is 40% above £325,000 — but with the right strategies, married couples can pass on up to £1 million tax-free. Full 2026/27 guide covering the 7-year rule, annual exemptions, Business Property Relief, and the critical April 2027 pension change.
Inheritance Tax in 2026/27: How the £325k and £500k Thresholds Actually Work
IHT at 40% sounds brutal — but couples can shield up to £1M. Here's exactly how the nil-rate band, residence nil-rate band, taper relief and the coming pension changes work in 2026/27.
Marriage and Civil Partnership Tax Benefits in the UK 2026/27 — A Complete Overview
Getting married or entering a civil partnership unlocks several UK tax advantages: Marriage Allowance (up to £252/year), CGT spousal transfers, IHT spouse exemption (unlimited), and pension nominations. Here's what changes when you marry and how to claim every benefit.