UK Gift Relief and IHT Annual Exemptions Guide 2026/27

IHT Rates and Thresholds for 2026/27

Because the NRB has been frozen since 2009, rising property values and inflation mean more estates cross the threshold every year. Systematic gifting using the exemptions below can meaningfully reduce -- or eliminate -- the IHT liability for your beneficiaries.

Annual Exemption -- £3,000 Per Year

Every individual can give away £3,000 per tax yearentirely free of IHT. This is the annual exemption. It applies to gifts to any number of recipients (you choose how to split the £3,000) and is available to both spouses or civil partners independently.

Carry-forward rule:if you did not use your annual exemption in the previous tax year, the unused amount (up to £3,000) rolls forward and can be used in the current year. You can only carry forward one year. If you use the current year first, then the carry-forward applies to the remainder. This means the maximum annual exemption in any single year is £6,000per person (£12,000 for a couple).

Over 10 years, a couple using the full £6,000 carry-forward each year would remove £120,000 from their combined estate -- saving up to £48,000 in IHT at 40%.

Small Gifts Exemption -- £250 Per Recipient

Separately from the annual exemption, you can give £250 per recipient per year to any number of different people completely free of IHT. There is no limit on the number of recipients, so a grandparent with 12 grandchildren could gift £3,000 per year purely through small gifts alone.

Wedding and Civil Partnership Gifts

Gifts made on or shortly before a wedding or civil partnership ceremony are exempt from IHT up to the following limits:

The gift must be made conditional on the ceremony taking place. If it is called off, the exemption does not apply. Wedding gifts can be stacked with the annual exemption for the same recipient: a parent giving a child both a £5,000 wedding gift and the £3,000 annual exemption (plus £3,000 carry-forward) could give £11,000 in one year completely free of IHT.

Normal Expenditure Out of Income -- No Annual Limit

This is the most powerful and most underused IHT exemption. Gifts made regularly from surplus income (not capital) can be entirely outside the estate with no monetary cap. Three conditions must all be satisfied:

1. Regular pattern: the gifts must form part of your normal expenditure -- they do not need to be identical amounts, but they should be recurring (monthly or annual payments work well).
2. Paid from income, not capital: the source must be income such as employment pay, pension, dividends, rental income or savings interest -- not proceeds from selling investments or property.
3. Standard of living maintained: after making the gifts, you must have enough remaining income to sustain your usual lifestyle without drawing on capital.

A retiree receiving £50,000 per year in pension and investment income who spends £35,000 annually could potentially gift the £15,000 surplus regularly to family members -- entirely outside their estate. Over 10 years, that is £150,000 removed from the taxable estate, saving £60,000 in IHT.

HMRC form IHT403 is used to claim this exemption on death. Keeping a contemporaneous annual schedule of income and expenditure is essential evidence.

Potentially Exempt Transfers (PETs) and the 7-Year Rule

Any outright gift to an individual (not a trust) is a Potentially Exempt Transfer (PET). PETs are immediately outside the estate if you survive for 7 years from the date of the gift. There is no cap on the size of a PET.

If you die within 7 years, the PET is brought back into your estate as a failed PET. The nil rate band is allocated to failed PETs in chronological order before the death estate. Where death occurs between 3 and 7 years after the gift, taper relief reduces the effective IHT rate on the failed PET:

Important: taper relief reduces the tax, not the value of the gift. It only helps when the failed PET (plus the rest of the estate) exceeds the nil rate band. If the combined total is below £325,000, there is no IHT anyway.

Chargeable Lifetime Transfers (CLTs) and Trusts

Gifts into most trusts are Chargeable Lifetime Transfers (CLTs), not PETs. CLTs are subject to IHT immediately if they exceed the available nil rate band at the time of the gift:

• Entry charge: 20% IHT on the amount by which the CLT exceeds the available NRB (lifetime rate is half the 40% death rate).
• 10-year periodic charge: up to 6% on the value of trust assets above the NRB every 10 years.
• Exit charge: proportional charge when assets leave the trust between 10-year anniversaries.

CLTs also use up the nil rate band for 7 years, which can erode the NRB available to absorb PETs or the death estate. Discretionary trusts (the most common CLT vehicle) offer flexibility in distributing assets to beneficiaries but carry ongoing administrative and tax costs.

Bare trusts and absolute trusts differ: gifts into bare trusts for beneficiaries who are adults are treated as PETs, not CLTs, and follow the simpler 7-year rule.

Business Property Relief -- New £1m Cap from April 2026

Business Property Relief (BPR) provides relief from IHT on qualifying business assets after at least 2 years of ownership. From 6 April 2026, the relief structure changed:

The £1m cap is per individual. Business owners and AIM-focused investors with assets above this level should review their succession plans -- the April 2026 change significantly increases the IHT exposure for larger business estates.

Agricultural Property Relief (APR) for farmland also underwent reform from April 2026: APR is similarly capped at £1m at 100% relief, with 50% above that threshold. Combined BPR and APR claims share the £1m allowance.

Interaction with the Residence Nil-Rate Band

The RNRB of up to £175,000 per person applies when a qualifying home is left to direct descendants (children, stepchildren, adopted children, grandchildren). The RNRB is tapered away at £1 per £2 above a net estate of £2,000,000-- so at £2,350,000, the RNRB is completely eliminated.

Gifting assets before death can reduce the estate below the £2m threshold and restore RNRB entitlement. For example, reducing a £2,300,000 estate to £2,000,000 via lifetime PETs would recover the full £175,000 RNRB, saving £70,000 in IHT (40% x £175,000) on top of any IHT saved by the gifts themselves.

The RNRB can be transferred between spouses, so unused RNRB on first death can be claimed by the surviving spouse, potentially doubling the combined RNRB to £350,000.

Gifts with Reservation of Benefit -- The Key Trap

A gift with reservation of benefit (GROB) is treated as if the gift was never made for IHT purposes. The classic example is gifting your home to your children but continuing to live there rent-free. HMRC will include the full value of the property in your estate on death.

To escape GROB treatment on a gifted property, you must pay a full market rent to the new owner from the date of the gift. The rent must be genuinely commercial and reviewed regularly. Pre-owned Asset Tax (POAT) is a separate annual income tax charge that can apply if you have disposed of an asset and later benefit from it, even if GROB does not apply.

GROBs are a common estate planning mistake. Before gifting any asset from which you might retain a benefit, take professional advice to ensure the arrangement is structured correctly.

Common IHT Gifting Planning Strategies

Combining the exemptions above creates a powerful gifting programme. A typical strategy for a married couple in retirement with surplus income might look like this:

The key principle is to start early. The 7-year clock on PETs makes gifting in your 60s and early 70s far more valuable than waiting until later in life. Systematic use of annual exemptions over 20 years costs nothing in IHT regardless of survival -- there is no 7-year waiting period on the annual exemption, small gifts or wedding gift exemptions.

Summary Table -- All IHT Gifting Exemptions 2026/27

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