How Much Money Can You Gift Tax-Free in The UK?

In the UK, most people can gift at least £3,000 a year completely free of inheritance tax, and often more once you combine the exemptions available.

But that figure only tells part of the story. Answering “how much can you gift tax free UK” depends on who you are giving to, what you are giving, how often and how long you live after you’ve given it.

This article is here to help. It covers every relevant exemption with clear numbers and worked examples, whilst also explaining when and why larger gifts can still end up tax-free. There are also a number of pitfalls we flag that catch people out the most, including the gift that looks generous but still owes tax years later.

So, if you have ever asked “do you pay tax on gifted money?” the honest answer can be not always, but generally only if you plan around the rules below.

Your annual gift allowances

These exemptions can often be combined, with most people significantly underusing them. Have you worked out how much of your own annual gift allowance UK-wise you have used this tax year? Many people do not track it, yet it’s a valuable allowance goes to waste every 5 April.

The annual exemption and how to make the most of it

Each individual can give away up to £3,000 per tax year (6 April to 5 April) without the gift being added to their estate for inheritance tax purposes. This is the most straightforward part of gifted money tax planning, because there is no seven-year clock to think about.

Worth knowing: the £3,000 can go to one person or be split across several, with no minimum per recipient. Unused annual exemption can be carried forward by one year only, so if you gave nothing last year, you can give £6,000 this year. However, you cannot build up more than two years’ worth. For couples, though, both partners have their own £3,000 exemption. It means a couple can gift £6,000 a year combined, or £12,000 in a year where both have carried forward unused allowance.

Example: David (68) and Margaret (65) want to help their daughter Emma with a house deposit. As neither used their annual exemption in 2025/26, in 2026/27 they can each gift £6,000 (this year’s allowance plus the carried-forward amount), a combined £12,000, completely free of inheritance tax. They won’t need to worry about a “survival period” or Emma potentially needing to pay IHT on the £12,000.

Small gifts and wedding exemptions

Small gift exemption: give up to £250 per person, to as many people as you like, each tax year, provided the recipient does not also receive any part of your annual exemption; the two cannot be combined for the same person. A grandparent with ten grandchildren could give £250 to each, £2,500 in total, separate from their own £3,000 annual exemption.

Wedding and civil partnership gifts: must be made before or on the wedding or ceremony date, not after. Amounts are per child-parent relationship, so a parent and a step-parent can each give £5,000 to the same child. Wedding gifts can be combined with the annual exemption, though not with the small gift exemption.

Example continued: Emma is getting married in September 2026. David and Margaret can each gift her £5,000 as a wedding gift, so that’s £10,000 when combined. Plus, when the £12,000 in annual exemption gifts above is taken into account, they can give Emma £22,000 tax-free in 2026/27.

Gifts from regular income

There is no limit on tax-free gifting where:

• the gift comes from regular income,
• is genuinely surplus after living expenses
• forms part of a regular pattern rather than a one-off payment.

This is classed as normal expenditure out of income, under section 21 of the Inheritance Tax Act 1984, and it is arguably the most underused exemption of all. It typically covers a child’s monthly rent, contributions to a grandchild’s ISA, care home fees, or school fees.

HMRC applies three conditions, all of which must be met:

• the gifts form part of normal expenditure;
• taken one year with another, they are made from income rather than capital;
• and the donor is left with enough income to maintain their usual standard of living.

A single one-off cheque will not qualify simply because you say it came from income. The pattern needs to be established, ideally through a standing order, with intent documented at the time. HMRC’s form IHT403 asks executors to account for regular gifts after death, so a contemporaneous record is worthwhile.

Example continued: David has pension income of £80,000 a year and living costs of £50,000, leaving £30,000 of surplus. He sets up a standing order paying Emma £1,500 a month towards her mortgage. Over ten years, that is £180,000 removed from his estate with no inheritance tax liability and no seven-year clock, provided the arrangement is properly documented.

Would your own income comfortably support a regular gift like this?

Larger gifts

This is the part many readers want to understand: what happens once you give more than the exemptions above cover?

Any gift above the annual exemption, and not covered by a specific exemption, is a Potentially Exempt Transfer, or PET. A PET is not immediately subject to inheritance tax and becomes fully exempt once the donor survives seven years from the date of the gift. If the donor dies within that window, the gift may become chargeable, though taper relief can reduce the rate depending on survival time.

A common misunderstanding: taper relief only applies once total gifts made in the seven years before death exceed the nil-rate band, currently £325,000. It does not reduce tax on every gift made more than three years before death; gifts within the nil-rate band are already covered by the band itself, not by taper relief.

But who is responsible for paying the inheritance tax on a chargeable PET?

If the estate has sufficient funds, it usually settles the bill. But where gifts in the seven years before death exceed £325,000, recipients can become personally liable for tax on their share, and this catches families by surprise more often than you might expect.

Gifts into trusts

Not every gift falls under the PET regime above. Gifts into discretionary trusts, and certain other trust structures, are deemed “Chargeable Lifetime Transfers” instead. These are subject to immediate tax at 20% where they exceed the nil-rate band, plus a further 20% if the donor dies within seven years.

Discretionary trusts also attract a periodic charge of up to 6% every ten years, in addition to an exit charge when assets leave. This is not the same as a cash gift to an individual, and the treatment is more complex, so it needs specialist, regulated advice.

Gifts with reservation

A gift is treated as a gift with reservation if the donor continues to benefit from the asset after giving it away, and in that case the asset stays in the donor’s estate for inheritance tax purposes as though the gift never happened. Common examples: giving your home to your children but living in it rent-free, or gifting family business shares while still taking the dividends.

The usual remedy is paying a market-rate rent, or other arm’s length consideration, for any continued use, which stops the gift with reservation rules applying, though income tax implications may follow for the recipient. A related charge, the pre-owned assets tax, can also apply where a reservation arrangement has been unwound but the donor still benefits some other way.

CGT on gifted assets

Gifting anything other than cash, such as shares, property, art, or a business interest, to anyone other than a spouse or civil partner is treated as a sale/disposal at market value for capital gains tax purposes, even though no money changes hands. It is up to the donor to pay the capital gains tax due on the gain between original cost and current market value, at 18% within their basic rate band or 24% above it, after the £3,000 annual exempt amount for 2026/27. This can make gifting an appreciated asset expensive before the inheritance tax clock starts.

Example: shares worth £100,000, originally bought for £20,000, are gifted to a child. The gain is £80,000. After the £3,000 annual exempt amount, £77,000 is taxable, and at the higher 24% rate that produces a capital gains tax bill of £18,480, due before any inheritance tax benefit is even considered.

Spouses and civil partners can transfer assets between themselves at no gain and no loss, making an inter-spousal transfer a useful first step before assets are gifted further down the family.

Keeping records, and why it matters more than people realise

When someone dies, executors must account for all gifts made in the seven years before death. They will need to do so on the inheritance tax return, form IHT400 and its schedules. Without proper records, an executor may struggle to show gifts qualify as normal expenditure out of income, potentially triggering a charge that could have been avoided.

Bearing this documentation in mind, it’s worth recording for every gift these key facts:

• Date
• Amount
• Recipient
• Relationship
• Whether it came from income or capital
• And, for regular gifts, evidence the pattern was established at the time rather than reconstructed afterwards.

A simple spreadsheet or letter of intent, kept with your other estate planning documents, is usually enough, provided it is contemporaneous.

Have you kept a record of what you have given away this tax year?

Putting it all together

Most people rely only on the annual exemption and perhaps the odd small gift, leaving normal expenditure out of income entirely untouched, despite it being one of the most powerful exemptions available to anyone with genuine surplus income.

A sensible order is often:

• the annual exemption first, since it is immediate and unconditional;
• then wedding gifts where relevant;
• then normal expenditure out of income for ongoing amounts;
• and finally larger one-off PETs. This is generally best suited to donors in good health who can reasonably expect to survive seven years.

In the last couple of years, there has been one further IHT development worth flagging. From April 2027, most unused pension funds become subject to inheritance tax. That means, for anyone planning to leave their pension to the next generation tax-free while drawing income from other assets, the relative appeal of gifting versus pension drawdown changes meaningfully. It means it is worth reviewing your IHT plan sooner rather than later.

Get tailored advice

The rules above cover the general position for 2026/27, but everyone’s circumstances differ, and gifting decisions interact with your wider estate, income and long-term plans. This article is general information only and should not be treated as personal financial or tax advice.

If you would like to talk through how much you could gift tax-free, how to structure larger gifts, or how the 2027 pension change might affect your planning, get in touch with our team. We would be glad to help you build a gifting strategy that fits your wider financial plan.

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