Last updated: 14 October 2026
What are the tax rules for gifting inherited money to your children?
Giving inherited money to your children is usually free of tax at the time you give it. There’s no gift tax in the UK. But the gift can count for inheritance tax (IHT) if you die within 7 years, as it’s a potentially exempt transfer. If you give it within 2 years of the death you inherited from, a deed of variation can redirect the inheritance so it’s treated as passing straight from the person who died, with no 7-year clock on you.
Option 1: a deed of variation
A deed of variation (also called an instrument of variation) changes the will after death.
- It must be made within 2 years of the death
- All beneficiaries who lose out must sign
- It must include a statement that it should apply for IHT (and CGT if needed)
- The gift is then treated as if the deceased left it to your children
This doesn’t use your own allowances, and the money is outside your estate from the start. Note that a variation doesn’t change the income tax position: if your child is under 18, HMRC still treats you as the parent who gave the money.
Option 2: an outright gift
| Exemption | Amount |
| Annual exemption | £3,000 a year, plus last year’s unused amount |
| Small gifts | £250 per person per year |
| Wedding gift to a child | £5,000 |
| Gifts out of surplus income | No limit, if regular and from income |
| Larger gifts | Potentially exempt; IHT-free if you live 7 years |
If you die within 7 years, taper relief reduces the tax on gifts above the £325,000 nil-rate band if you survive at least 3 years.
Income tax on gifts to minors
If you give money to your child under 18 and it earns more than £100 a year in interest, the whole income is taxed on you. Junior ISAs and pensions are exempt from this rule. The same applies where you redirect money to a minor child by a deed of variation, so consider a Junior ISA or a bare trust with care.
Example
Rhys inherits £200,000 from his mother. Within 18 months, he signs a deed of variation passing £100,000 to his two children. The money is treated as left by his mother, so it is not his gift, and if he dies within 7 years it doesn’t count against his estate. His mother’s estate pays no extra IHT because the amount passing is the same; only who gets it has changed.
Capital gains tax
Cash gifts don’t have CGT. If you give inherited property or shares instead, you may have a CGT bill on any gain since the date of death, unless you use a deed of variation.
Keep records
Record each gift, the date, the amount and which exemptions apply. Your executors will need this information.
Frequently asked questions
Do my children pay tax on the gift?
No, but they pay tax on any income or gains it produces.
Can I keep control of the money?
A trust can help, but has its own tax rules.
Is there a limit on deeds of variation?
No, but it can’t be made for money in exchange.
Does it matter if I’ve already spent some of it?
A variation can still apply to the rest.
Related: gifting the family home, inheritance tax receipts and life insurance and IHT.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with inherited money gifting advice. See our small business accountants 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.
