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Gifts are the main way an estate's value is reduced before death. Despite the Budget changes to business and agricultural relief and to pensions, the gift exemptions and the 7-year rule set out below are unchanged, and the figures still apply in the current tax year. This guide explains what each exemption is and what conditions attach to it.
For more detail on specific gifting topics see our guides to the 7-year gifting rule, taper relief on gifts, and normal expenditure out of income.
Some gifts are immediately exempt from IHT — they fall outside the estate straight away, regardless of when they were made. These are the safest gifts because there is no 7-year survival requirement.
Each person can give away £3,000 per tax year free of IHT. This can be given to one person or split among several. Unused allowance from the previous tax year can be carried forward — but only one year. So someone who used none of the previous year's allowance can give up to £6,000 immediately exempt in the current one.
Spouses and civil partners each have their own £3,000 allowance — a combined £6,000 a year, or £12,000 where both have the previous year's allowance unused as well.
The annual exemption has been £3,000 since 1981 and has never been index-linked. No official figure is published for what it would be worth had it kept pace with inflation, and no increase has been announced.
You can give up to £250 to as many different individuals as you like each tax year, and these gifts are immediately exempt. You cannot, however, combine the small gifts exemption with the annual exemption for the same recipient — if you give one person £3,000 using the annual exemption, you cannot also give them £250 under the small gifts rule.
Gifts made in consideration of marriage or civil partnership are immediately exempt up to:
These exemptions apply per wedding/civil partnership, not per year, and must be made before or at the time of the event.
Gifts between spouses or civil partners during their lifetimes are exempt from IHT without limit, as transfers between them on death are. There is one restriction: where the person making the gift is a long-term UK resident and the recipient spouse or civil partner is not, the exemption is capped at the nil-rate band applying at the date of the transfer — currently £325,000 — as a cumulative lifetime limit. Domicile stopped being the test for this on 6 April 2025, when it was replaced by long-term UK residence.
Gifts to UK charities are immediately exempt from IHT with no limit. Where at least 10% of the baseline amount — broadly the estate after exemptions, reliefs and the nil-rate band — passes to charity on death, the rate on the rest of that component of the estate is 36% rather than 40% — see our guide to the charitable legacy IHT reduction.
Gifts are exempt under this rule where the estate can show that:
...then those gifts are immediately exempt from IHT with no annual limit. There is no cap on the amount. See our dedicated guide to normal expenditure out of income for how to document it properly.
All three conditions have to be met, and the burden of showing they were met falls on the personal representatives after the death, so records of income and outgoings matter. Regular payments out of surplus pension income — school fees, mortgage contributions, or transfers into a grandchild's savings — are the usual example.
Gifts that do not fall within any immediate exemption are called "potentially exempt transfers" (PETs). They are potentially — not immediately — exempt from IHT. A PET becomes fully exempt if the donor survives for 7 years from the date of the gift. If the donor dies within 7 years, the gift is added back to the estate.
The 7 years runs from the date of the gift, so the date a gift was made is what determines whether it falls back into the estate. For an executor, establishing the dates and values of gifts made in the 7 years before death is part of valuing the estate.
If you die within 7 years of making a PET, taper relief may reduce the IHT payable on that gift:
Taper relief reduces the tax rate, not the gift value. The gift still uses up the nil-rate band before taper relief is applied. For a full explanation with worked examples, see our guide to taper relief on gifts.
If you give something away but continue to benefit from it — for example, giving your house to your children but continuing to live there rent-free — the gift will not be effective for IHT. HMRC treats gifts with reservation of benefit as still part of the estate. See our guide to gifts with reservation of benefit.
Related to gifts with reservation, the pre-owned asset charge (POAC) applies an income tax charge if you give away an asset and then benefit from it. This catches some arrangements that avoid the GWR rules. See our guide to the pre-owned asset charge.
Giving away assets that have increased in value is a disposal for CGT purposes. The donor may face a CGT charge on the gain — even though no money changes hands. Certain assets benefit from holdover relief (deferring CGT into the recipient's hands), but this must be claimed and is not automatic.
The exemptions above operate independently of one another, so more than one can apply in the same tax year:
See also the IHT planning checklist.
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