Last updated: 14 October 2026
Can you avoid inheritance tax by gifting money early?
Often, yes. Gifts of money to individuals are free of inheritance tax if you live for 7 years after making them. Several types of gift are exempt straight away, even if you die soon after. They include gifts within the £3,000 annual exemption, small gifts of up to £250 per person, wedding gifts and regular gifts out of surplus income. Gifting early, and keeping records, is one of the simplest ways to cut a 40% IHT bill.
Gifts that are exempt immediately
| Exemption | Limit |
| Annual exemption | £3,000 a year, and you can carry forward one unused year |
| Small gifts | £250 per recipient a year, but not to someone who also receives the £3,000 annual exemption |
| Wedding or civil partnership gifts | £5,000 from a parent, £2,500 from a grandparent, £1,000 from anyone else |
| Gifts to a spouse or civil partner | Unlimited, if both are UK-domiciled or long-term resident |
| Gifts to charities and political parties | Unlimited |
| Normal expenditure out of income | Unlimited, if the conditions are met |
Normal expenditure out of income
This is the most valuable exemption, but it is often overlooked. Gifts are exempt if they:
- are made out of your income, not your capital
- form part of a regular pattern, such as a monthly payment into a child’s savings
- leave you with enough income to keep your normal standard of living
Keep a record each year of your income, spending and gifts. Your executors will need it to claim the exemption on form IHT403.
Larger gifts and the 7-year rule
Gifts above the exemptions are potentially exempt transfers. If you die within 7 years, they are added back to your estate and use up your £325,000 nil-rate band first. Taper relief reduces the tax on gifts above the nil-rate band if you die between 3 and 7 years after the gift.
Example
Margaret gives her son £100,000 in 2026 and dies in 2031, after 5 years. The gift falls within her £325,000 nil-rate band, so there is no tax on the gift itself, but her remaining estate has only £225,000 of nil-rate band left. If she survives until 2033, the gift is ignored entirely.
Gifts into trusts
Gifts into most trusts are chargeable straight away at 20% above the nil-rate band. Trusts also have 10-yearly charges. Take advice before you use a trust.
Pension changes from April 2027
From 6 April 2027, most unused pension funds will be counted in your estate. Many people are now gifting surplus savings or income earlier. See inherited money gifted from surplus income.
Keep a simple gifts log each year.
Frequently asked questions
Do my children pay tax on money I give them?
No. There is no income tax or CGT on a cash gift. Any IHT is paid from your estate if you die within 7 years.
Should I tell HMRC about gifts?
You don’t report them while you’re alive. Keep records for your executors.
Can I gift my house instead?
You can, but special rules apply. See gifting your home to your children.
Can I give money and still use it?
No. If you keep a benefit, the gift is ignored for IHT.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with inheritance tax planning. See our inheritance tax planning service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
