In the UK you can give away far more than £3,000 a year tax-free. Each tax year you have a £3,000 annual exemption (carry one unused year forward), unlimited £250 small gifts to different people, wedding gifts of up to £5,000, regular gifts out of surplus income, and unlimited transfers to a spouse or civil partner. Larger gifts are Potentially Exempt Transfers that fall outside your estate completely once you survive seven years – and may attract reduced tax under taper relief before then.
Related reads: inheritance tax planning and wills, power of attorney & probate.
What actually counts as a gift?
For inheritance tax (IHT) purposes, a gift is any transfer of value where you don’t get something of equal worth back. That includes cash, but also property, shares, jewellery, a car, or selling an asset to a family member for less than it’s worth – the discount is the gift. If you give something away but keep using it (the classic example is gifting your house but continuing to live in it rent-free), HMRC treats it as a “gift with reservation of benefit” and it stays inside your estate. Genuine gifts that meet an exemption below leave your estate either immediately or after seven years.
The £3,000 annual exemption (and the carry-forward trick)
Every individual can give away £3,000 each tax year completely free of IHT – immediately, with no seven-year wait. This is the figure most people have heard of, but it’s widely misunderstood. If you don’t use your full allowance, you can carry the unused part forward by one tax year only. So a person who gave nothing last year could gift £6,000 this year (£3,000 from last year plus £3,000 this year). A couple who both carried forward could move £12,000 between them. You must use the current year’s allowance first, then mop up the carried-forward amount.
Small gifts of £250 per person
You can give as many gifts of up to £250 per person as you like each tax year, to as many different people as you like, with no IHT. The only catch: you can’t combine the small-gift exemption with the £3,000 annual exemption for the same person. If you give someone £500, the whole amount has to come from your annual exemption (or count as a PET) – the first £250 isn’t separately exempt. For spreading modest sums across grandchildren, nieces and nephews, though, the £250 rule is genuinely generous.
Wedding and civil-partnership gifts
Gifts made in consideration of a marriage or civil partnership get their own exemption, on top of your annual allowance. The amount depends on your relationship to the couple: up to £5,000 if you’re a parent of one of the people getting married, £2,500 if you’re a grandparent (or great-grandparent), and £1,000 for anyone else. The gift must be made on or shortly before the wedding, and the wedding must actually go ahead. A parent could therefore hand over £8,000 tax-free to a marrying child – £5,000 wedding gift plus the £3,000 annual exemption.
Gifts between spouses and civil partners
Transfers between spouses or civil partners who are both UK-domiciled are completely exempt from IHT, with no limit, whether made during your lifetime or on death. This is why couples can pool allowances and why any unused nil-rate band passes to the surviving partner. (Different rules apply where one spouse is non-UK-domiciled, where a cap can apply – worth specialist advice.)
Normal expenditure out of income – the underused exemption
One of the most powerful and least-known exemptions: regular gifts made out of your surplus income (not capital) are immediately outside your estate, with no upper limit and no seven-year clock. To qualify, three conditions in section 21 of the Inheritance Tax Act 1984 must be met – the gift must form part of your normal (regular, habitual) expenditure, it must be made out of income, and after making it you must retain enough income to maintain your usual standard of living. Funding a grandchild’s school fees or paying a monthly sum into their savings from your pension or salary are textbook examples. Keep meticulous records, because the exemption is usually claimed by your executors after your death.
The 7-year rule and Potentially Exempt Transfers
Any gift that isn’t covered by an exemption is a Potentially Exempt Transfer (PET). It’s “potentially” exempt because it becomes fully tax-free if you survive seven years from the date of the gift. If you die within seven years, the gift is added back into your estate and uses up your nil-rate band first. The nil-rate band – the amount of your estate taxed at 0% – is frozen at £325,000 for 2026/27. Only the portion of gifts that exceeds the nil-rate band can be tapered (see below); gifts within the band don’t get taper relief, they simply reduce the band available to the rest of your estate.
Taper relief explained
Taper relief is the most misunderstood part of the system. It does not reduce the value of the gift – it reduces the tax due on a gift, and only where the gift (combined with earlier gifts in the seven years before death) exceeds the £325,000 nil-rate band. The standard IHT rate is 40%. The table below shows how the tax falls the longer you survive after making the gift.
| Years between gift and death | Taper relief | Effective IHT rate on excess |
|---|---|---|
| 0 to 3 years | 0% | 40% |
| 3 to 4 years | 20% | 32% |
| 4 to 5 years | 40% | 24% |
| 5 to 6 years | 60% | 16% |
| 6 to 7 years | 80% | 8% |
| 7+ years | 100% (exempt) | 0% |
Worked example: how taper relief really works
Margaret gives her son a cash gift of £425,000 in June 2026. It’s a PET, so no tax is due at the time. Sadly she dies 4 years and 6 months later, having made no other gifts. The gift is added back to her estate. Her £325,000 nil-rate band is set against the gift first, leaving £100,000 in excess. Tax on that excess would normally be 40% = £40,000. Because she survived between 4 and 5 years, taper relief of 40% applies, reducing the tax to £24,000 (an effective 24% on the excess). Note the trap: if the gift had been £325,000 or less, there’d be no taper relief at all – it would simply use up the nil-rate band, leaving less for the rest of her estate.
Keeping records HMRC will accept
Good records make life far easier for whoever administers your estate. For every significant gift, note the date, the recipient, the amount or asset, and which exemption you’re relying on. For the normal-expenditure-out-of-income exemption in particular, keep a simple annual record of your income, your normal living costs, and the regular gifts you make – HMRC’s form IHT403 effectively asks for exactly this. A one-page spreadsheet updated each tax year can save your executors thousands in tax and stress.
Common gifting myths, debunked
| Myth | Reality |
|---|---|
| “You can only give £3,000 a year.” | False. The £3,000 annual exemption is just one of several. You can also make £250 small gifts, wedding gifts, regular gifts out of income, and unlimited PETs. |
| “Any gift is tax-free after 7 years.” | Broadly true for outright PETs – but not for gifts with reservation of benefit or certain trusts. |
| “Taper relief cuts the value of the gift.” | False. It reduces the tax, and only on the part of gifts above the £325,000 nil-rate band. |
| “The recipient pays the tax.” | Usually the estate pays, but if the estate can’t, liability can fall on the recipient of the gift. |
Frequently asked questions
How much money can I gift my family tax-free each year?
At minimum £3,000 under the annual exemption, plus unlimited £250 small gifts to different people, plus wedding gifts and regular gifts out of surplus income. Larger amounts can be given as PETs, which become tax-free if you survive seven years. There is no single cap on lifetime gifting.
Do I have to tell HMRC about gifts I make?
Not during your lifetime for ordinary gifts. Gifts are reported by your executors after your death on form IHT403 if they fall within the seven-year window or exceed the exemptions. That’s why keeping your own records is so valuable.
Does the £3,000 allowance reset every tax year?
Yes. The annual exemption resets each 6 April. If you don’t use it, you can carry the unused portion forward by one tax year only, after which it’s lost. You must use the current year’s allowance before any carried-forward amount.
Is there a limit on regular gifts out of income?
No upper limit, provided the gifts are habitual, paid from income rather than capital, and don’t reduce your usual standard of living. This makes the normal-expenditure-out-of-income exemption one of the most effective IHT planning tools for those with surplus pension or salary income.
What happens if I die within seven years of a large gift?
The gift is added back into your estate and uses your £325,000 nil-rate band first. Only the excess can be taxed, and taper relief reduces that tax from 32% (3–4 years) down to 8% (6–7 years). Survive the full seven years and the gift is exempt entirely.
Last reviewed: June 2026. This article is general information, not personal financial or tax advice. Inheritance tax rules are complex and depend on your circumstances – consider speaking to a qualified financial adviser or solicitor before making large gifts.