Inheritance Tax on Gifts 2026/27

Giving money away during your lifetime is the classic way to reduce Inheritance Tax (IHT) on your estate, but the rules are precise. Most gifts to individuals are Potentially Exempt Transfers (PETs): they are completely ignored for IHT if you survive seven years after making them, and taxed only if you die sooner, with taper relief softening the bill as time passes. For the 2026/27 tax year the rates are unchanged — 40% on chargeable gifts, an annual exemption of £3,000, small gifts of £250 and a series of family gift exemptions. Estimate your estate's position with the IHT Calculator→, then read the Inheritance Tax 2026/27 guide for the wider picture.

The key insight is timing: every gift you make today that you survive for seven years removes both the gift and its future growth from your estate. That makes lifetime giving one of the most powerful — and, if you get the exemptions wrong, one of the most misunderstood — tools in estate planning.

What Counts as a Gift

For IHT purposes a gift is any transfer that reduces your estate: cash to family, property sold below market value (the gift is the discount), shares or investments handed over, and assets moved into trusts. Interest-free loans are not gifts, but waiving the repayment is. Birthday and Christmas presents count in principle but are usually covered by the small gifts exemption. The valuation point matters — shares and property are valued at the date of transfer, and any growth after that leaves your estate entirely, which is one of the reasons lifetime giving is so effective.

The 7-Year Rule and Taper Relief

A PET made to an individual becomes fully exempt after seven years. If you die within seven years, the gift is added back into your estate for IHT purposes, using your £325,000 nil rate band first. Gifts made 3–7 years before death benefit from taper relief, which reduces the rate of tax, not the value of the gift:

Taper relief only applies to the value of gifts above the nil rate band. If total gifts within seven years stay below £325,000, no IHT is due on them at all regardless of timing, because the nil rate band absorbs them first.

The £3,000 Annual Exemption

Every individual can give away £3,000 in total each tax year without any IHT consequence, and unused exemption carries forward for one year only. A couple can therefore gift £6,000 a year using both exemptions, and a couple who gave nothing last year can give £12,000 this year by using both current and carried-forward exemptions. The exemption is automatic — no reporting is needed — and it is the easiest way to move meaningful sums out of an estate without touching the seven-year rule.

Example: Margaret gives £5,000 to her daughter in 2026/27. She used no exemption in 2025/26, so the £3,000 current exemption plus £2,000 carried forward covers the whole gift. If she dies within seven years, none of the £5,000 is chargeable.

Small Gifts and Wedding Gifts

The £250 small gifts exemption is per recipient per tax year, so you can give £250 to twenty different people and stay exempt. It cannot be combined with the £3,000 annual exemption for the same recipient. Wedding gifts are exempt if the marriage or civil partnership actually takes place, and they are in addition to the annual exemption. A parent can therefore give a child £3,000 (annual exemption) plus £5,000 (wedding gift) in the same year.

Gifts from Surplus Income

The normal expenditure exemption covers regular gifts paid out of income that do not reduce your standard of living: monthly payments into a child's savings account, regular premiums on a life policy, or standing orders to adult children. To qualify, the gifts must be made from income (not capital), part of a pattern of giving, and leave you with enough income to maintain your usual lifestyle. This exemption has no £3,000 cap and no seven-year wait — the main practical challenge is proving the income surplus, which is why HMRC often asks for bank statements when the exemption is claimed.

Gifts to Spouses and Charities

Gifts between spouses and civil partners are generally exempt from IHT, subject to the current spouse/civil-partner exemption conditions. Gifts to qualifying charities, qualifying political parties and qualifying housing associations are also exempt. These exemptions sit outside the annual exemption, but overseas-residence and recipient-status rules can matter. The spouse exemption is also the basis for the transferable nil rate band: unused allowance on the first death may pass to the survivor, giving a couple a possible combined £650,000 nil rate band.

Gifting Property — Think Before You Transfer

Gifting the family home or an investment property is a bigger decision than gifting cash. A house transferred to a child can be a PET, but the seven-year clock and valuation depend on the transfer being an outright gift. If you continue to benefit from the property, the gift-with-reservation rules can keep it in your estate; paying market rent or genuinely ending the benefit can change the analysis. Giving away a home can also affect the residence nil rate band, but downsizing, selling or other replacement-property rules may preserve an entitlement in some cases. Do not assume that every gifted home automatically loses RNRB.

Common Gift-Planning Mistakes

• Assuming taper relief starts immediately — the first three years after a gift still attract the full 40% rate.
• Double-counting exemptions — the £250 small gift cannot be used for someone who also receives part of your £3,000 annual exemption.
• Ignoring the growth element — a gift of shares removes future growth from your estate, which is often worth more than the gift itself.
• Failing to document surplus-income gifts — without records, HMRC may treat them as PETs instead.
• Gifting in the wrong order — gifts within seven years use the nil rate band before the estate, so older gifts should be considered first.

Action Plan for 2026/27

Frequently Asked Questions

Gifts are not automatically harmless because they are affordable

Affordability and tax treatment are different questions. A donor may be able to afford a transfer and still create a PET, a chargeable lifetime transfer, a gift with reservation, or a disposal for Capital Gains Tax. Before transferring an asset, write down what the donor will own afterwards, who will use it, who will pay its costs, and whether the donor can take it back. Those practical facts are often more important than the label used on the bank transfer.

Consider also the recipient's position. A gift may affect means-tested support, care-fee planning, a divorce or bankruptcy analysis, or the recipient's own tax when an asset is sold. A gift to a minor may need a trust or account structure, and a gift to a company or trust is not governed by the same simple PET rule as an outright gift to an individual. The seven-year headline should therefore be treated as the start of the review, not its conclusion.

When a donor has a spouse or civil partner, record whether the transfer is intended to be an outright gift and whether the spouse exemption is being relied on. When a charity or political organisation is involved, confirm that the recipient qualifies. Keep copies of correspondence, valuations and legal documents with the annual gift schedule so the executor can distinguish exempt transfers from gifts that need a detailed calculation.

Evidence to keep for lifetime gifts

Good gift planning is also an evidence exercise. Keep a dated schedule showing the donor, recipient, asset or cash amount, the reason for the transfer, and whether anything was received in return. A bank transfer alone may prove that money moved, but it may not prove whether the payment was a gift, a loan, a contribution to shared costs or part of a wider arrangement. A short contemporaneous note can prevent a later executor from having to reconstruct the decision.

For gifts from surplus income, keep the donor's income records, regular household spending, bank statements and a running schedule of gifts. The point is to show a pattern and enough retained income for the donor's normal standard of living. Review the schedule when pension income, care costs, mortgage payments or household circumstances change. A pattern that was affordable several years ago should not automatically be treated as affordable now.

For property and shares, record the market value at the transfer date and ask whether Capital Gains Tax, stamp taxes, income-tax consequences or a connected-party valuation issue also arises. Inheritance Tax and Capital Gains Tax are separate systems. A gift can be outside the estate after the relevant rules are satisfied while still producing a disposal for another tax. Do not sign a transfer based only on the IHT result.

Official sources

• Inheritance Tax: gifts
• Inheritance Tax: annual exemptions
• HMRC Inheritance Tax manual

Model your estate and gifting plan with the IHT Calculator→, then read the Inheritance Tax 2026/27 guide for the nil rate band and residence relief, and the Trust Tax guide if you are considering a trust.

Official sources

• HMRC: Work out Inheritance Tax due on gifts
• HMRC: Inheritance Tax thresholds and interest rates
• HMRC: Inheritance Tax — gifts and exemptions
• HMRC: Inheritance Tax Manual

These HMRC pages are the official references for gifts, exemptions, thresholds, interest and the Inheritance Tax rules. Check the gift history, estate facts and current guidance before making a transfer.