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Gifting remains the most powerful way to reduce inheritance tax. Despite Budget changes to BPR, APR, and pensions, the core gifting exemptions and the 7-year rule are unchanged for 2025/26. A structured approach — combining annual exemptions, normal expenditure out of income, and larger PETs — can significantly reduce an IHT bill over time.
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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 year can be carried forward — but only one year. So if you used none of your 2024/25 allowance, in 2025/26 you could give away up to £6,000 immediately exempt.
A married couple or civil partners can each use their own £3,000 allowance — giving a combined £6,000 per year (or £12,000 if both have unused allowances from the prior year).
Important: the annual exemption has been £3,000 since 1981. In inflation-adjusted terms, it has lost around two-thirds of its real value. There is no current plan to increase it.
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 completely exempt from IHT — there is no limit. This is in addition to the unlimited spouse exemption on death. Lifetime transfers to a non-UK-domiciled spouse are subject to a different limit — seek advice.
Gifts to UK-registered charities are immediately exempt from IHT with no limit. If you leave 10% or more of your net estate to charity in your will, the IHT rate on the rest drops from 40% to 36% — see our guide to the charitable legacy IHT reduction.
This is the most underused exemption available. If you 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.
This is especially valuable for retirees with pension income that exceeds their living costs. Regular monthly transfers to children or grandchildren — covering school fees, mortgage contributions, or simply building their savings — can remove substantial sums from the estate each year, completely free of IHT.
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 key principle is: the sooner you start, the better.Every year of inaction is a year that large gifts could have been placed on the 7-year clock.
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.
A well-structured gifting strategy typically combines:
See the IHT planning checklist for a full 20-step approach to reducing your estate tax bill.
Regular gifts from surplus income are completely exempt from IHT with no annual limit. How the exemption works, what HMRC requires, and how to document it correctly.
A comprehensive 20-step IHT planning checklist for 2025/26. Covers gifting, trusts, nil-rate bands, insurance, charitable legacies, and the new Budget changes.
From April 2027, unspent pension funds fall into your taxable estate. Worked examples show the impact and the planning steps that can still reduce the bill.
A life insurance policy written in trust pays out outside your estate, avoiding IHT on the proceeds. How trusts work, which to use, and the steps to set one up.
Discretionary trusts face a 10-year periodic IHT charge and an exit charge when assets leave. How the calculations work, what rates apply, and when trusts still make sense.
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