How much can you give away without paying inheritance tax — and what are the rules?
Giving money away during your lifetime is one of the most straightforward ways to reduce what your family will owe in inheritance tax. But there are rules about what counts as tax-free and what does not. Here is how it works.
Every tax year, you can give away £3,000 completely free of inheritance tax. If you are married or in a civil partnership, you each have your own £3,000 allowance — £6,000 between you. These gifts take effect immediately. There is no waiting period and no paperwork to file.
If you did not use last year's allowance, you can carry it forward for one year only. That means your first year's gift could be up to £6,000 per person, or £12,000 for a couple.
The amounts may sound modest. But used every year over a long period, they add up. A couple giving £6,000 a year for 12 years will have moved £72,000 out of their estate — saving their family up to £28,800 in tax.
On top of the annual exemption, you can give up to £250 per person per year to as many different people as you like. These are sometimes called "small gifts" and they are completely tax-free.
There are also special rules for wedding gifts. A parent can give up to £5,000 to a child who is getting married or entering a civil partnership. A grandparent can give £2,500, and anyone else can give £1,000. These are separate from the annual exemption.
There is no upper limit on how much you can give away. You can gift £10,000, £100,000, or £1 million if you choose. The key rule is that you need to survive for seven years after making the gift. If you do, the money is completely outside your estate and no tax is due.
If you die within seven years, the gift may be taxed. However, if you survived at least three years, the tax is reduced on a sliding scale. This is called taper relief:
An important detail: taper relief reduces the tax rate on the gift, not its value. The gift still counts when working out which tax band applies to the rest of the estate.
This is one of the most powerful but least well-known exemptions. If your regular income — from pensions, investments, rent, or anything else — is more than you need to maintain your normal standard of living, you can give away the spare amount and it is immediately free of inheritance tax. No seven-year wait. No upper limit.
Three conditions must be met: the gifts must be regular (not one-off), they must come from income rather than savings, and you must still be able to maintain your normal standard of living after making them.
For people with a good pension or steady investment income, this exemption can remove very significant amounts from the estate over time. A couple with £25,000 a year of surplus income could move £250,000 out of their estate over ten years — saving up to £100,000 in tax.
Keep records. HMRC will want to see evidence that gifts came from income you did not need. A simple note of your income, spending, and gifts for each tax year is enough. Your family will need this after your death to claim the exemption.
A gift must be genuine. You cannot give something away and then continue to benefit from it. The most common example is giving your house to your children but continuing to live in it without paying a proper market rent. HMRC treats this as though the gift never happened — the property stays in your estate.
This is sometimes called a "gift with reservation of benefit." It catches a lot of families who think they have reduced their estate when they actually have not.
Be careful with property. Giving away your home while continuing to live there is one of the most common inheritance tax mistakes. If you want to explore this, get professional advice first. There are ways to do it properly, but they involve paying fair rent or genuinely moving out.
There is no limit on gifts between married couples or civil partners. You can give your spouse as much as you want, whenever you want, completely free of inheritance tax. This also applies to assets like property and investments, not just cash.
However, this does not reduce the overall estate — it just moves it from one spouse to the other. The real tax saving comes from gifts to the next generation: children, grandchildren, or anyone else who is not your spouse.
Gifts to registered UK charities are completely exempt from inheritance tax, whether made during your lifetime or in your will. If you leave at least 10% of your estate (after deducting allowances) to charity, the tax rate on everything else drops from 40% to 36%.
Giving away money you might need. Once you make a gift, you cannot ask for it back. If you later need the money for care costs or living expenses, it is gone. Always make sure you have enough to live on before making large gifts.
Not keeping records. Without records, your family may not be able to prove that gifts qualified for an exemption. Keep a simple note of every gift: the date, the amount, who received it, and which exemption it falls under.
Assuming the seven-year clock has started when it has not. The clock only starts when you completely give up the asset. If you give away your house but keep living in it, the seven years never begin.
Forgetting about gifts already made. All gifts within seven years of death are added up together. A series of smaller gifts can use up your tax-free allowance, meaning later gifts are taxed at the full rate.
Our free calculator estimates your inheritance tax liability and shows you how gifting strategies could reduce it — including annual exemptions, larger lifetime gifts, and gifts from surplus income. It takes under five minutes.