Gifting Money to Family: A UK Guide to Tax-Free Gifts and Inheritance Tax
Learn how much money you can gift to family tax-free in the UK. Our 2025 guide explains the £3,000 annual exemption, the 7-year rule, and Inheritance Tax.
Helping your children with a house deposit, supporting a grandchild through university, or simply giving a generous cash gift are wonderful ways to support your family. However, it's vital to understand how these gifts are viewed by HM Revenue & Customs (HMRC), as large gifts can sometimes attract an unexpected tax charge down the line.
The main tax to be aware of when gifting money is Inheritance Tax (IHT). At Plouta, we believe in empowering you with the knowledge to make smart financial decisions for you and your loved ones. This guide will explain how much you can gift tax-free each year, the crucial "7-year rule," and how you can plan your gifting strategy effectively.
What You Will Learn in This Guide ⤵
The Basics of Gifting & Tax: Understanding why Inheritance Tax is the key consideration.
Tax-Free Gifting Allowances: A breakdown of the gifts you can make every year without any tax implications.
Large Gifts & The 7-Year Rule: How "Potentially Exempt Transfers" work.
Gifting from Surplus Income: A valuable but often overlooked exemption.
Record Keeping: Why it's essential to keep track of your gifts.
Understanding Gifts and Inheritance Tax (IHT)
In the UK, there is no specific "Gift Tax." When you give a cash gift to a family member, they do not pay Income Tax on it. The tax that can come into play is Inheritance Tax, which is a tax on your estate (your property, money, and possessions) when you pass away.
The Nil-Rate Band: Everyone has a tax-free IHT allowance, known as the "nil-rate band." For the 2025/26 tax year, this is £325,000.
The Rate: Any part of your estate above this threshold is typically taxed at 40%.
Large gifts made during your lifetime can be counted as part of your estate if you pass away within seven years of making them. However, there are several allowances that let you gift money completely tax-free.
Your Tax-Free Gifting Allowances: What You Can Give Each Year
HMRC provides several allowances that allow you to make gifts that are immediately exempt from Inheritance Tax, meaning they are not considered part of your estate, no matter when you pass away.
1. The £3,000 Annual Exemption This is the most well-known allowance.
Every tax year (6th April to 5th April), you can give away a total of £3,000.
You can give this all to one person or split it between several people.
If you don't use your full £3,000 allowance in one tax year, you can carry it forward for one year only. For example, if you only gifted £1,000 in one year, you could gift £5,000 the following year (£3,000 for the current year + the £2,000 unused from the previous year).
2. The £250 Small Gift Exemption
You can give as many gifts of up to £250 per person as you want each tax year, as long as the recipient hasn't received a gift using another allowance from you.
Example: You could give £250 each to ten different grandchildren, for a total of £2,500, and this would be entirely exempt.
Important: You cannot combine this with the annual exemption for the same person. You can't give someone your £3,000 annual exemption and a £250 small gift.
3. Wedding or Civil Partnership Gifts You can give a tax-free gift to someone who is getting married or entering a civil partnership. The amount depends on your relationship to them:
£5,000 if it's to your child.
£2,500 if it's to your grandchild or great-grandchild.
£1,000 to any other person. You can combine this with your £3,000 annual exemption for the same person (e.g., give a child £8,000 for their wedding tax-free).
4. Gifts from Surplus Income ("Normal Expenditure Out of Income") This is a very valuable but more complex exemption. You can make regular gifts of any amount, and they will be immediately exempt from IHT, provided you can prove three things:
The gifts are made as part of your normal expenditure.
They are made from your surplus income (e.g., salary, pension income, dividends), not from your capital savings.
Making the gifts does not affect your ability to maintain your normal standard of living.
Example: A grandparent with a large pension income could pay for a grandchild's school fees or regular music lessons. Provided they can afford this from their income without impacting their own lifestyle, these payments can be IHT-free. Keeping detailed records of your income and expenditure is essential to use this exemption.
Large Gifts & The Crucial "7-Year Rule" (Potentially Exempt Transfers)
What if you want to give a large gift that isn't covered by an allowance, like helping a child with a £30,000 house deposit?
Potentially Exempt Transfer (PET): Any gift you make to an individual that is not covered by an exemption is a PET.
The 7-Year Rule: This gift becomes 100% tax-free if you live for seven years after making it.
What if you die within 7 years? The gift becomes a "chargeable transfer" and is added back into the value of your estate for IHT purposes. It will use up part of your £325,000 nil-rate band.
Taper Relief: If IHT is due on the gift because your total gifts exceed the nil-rate band, the rate of tax on the gift is reduced on a sliding scale if you die between three and seven years after making it.
| Years Between Gift and Death | Tax Rate Paid on the Gift (above the £325,000 threshold) |
|---|---|
| Less than 3 years | 40% |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 or more years | 0% |
Know Where You Stand: Take the Plouta Financial Wellness Survey
Taking our Financial Wellness Survey is a great first step. It will help you reflect on your habits and identify the key areas to focus on in your journey towards financial freedom.
Plouta Tip: Keep Good Records
If you are making gifts as part of your long-term financial planning, keeping clear records is essential. This will help the executors of your estate deal with your tax affairs correctly. For each gift, note down:
What you gave and its value.
Who you gave it to.
The date you gave it.
Which exemption you are using (if any).
Conclusion: Gifting with Confidence
Gifting money to your family is a wonderful way to support them, but it pays to be aware of the tax rules. By making smart use of your annual, tax-free gift allowances, you can pass on wealth effectively and reduce the potential value of your estate for Inheritance Tax purposes.
For larger gifts, understanding the 7-year rule is crucial. Planning your gifts as early as possible gives them the best chance of falling outside your estate entirely. By combining generosity with careful planning, you can provide for your loved ones with confidence and peace of mind.
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Disclaimer: This guide provides general information about gifting money and Inheritance Tax in the UK, based on rules and allowances known as of July 2025. It is for informational and educational purposes only and does not constitute financial or tax advice. Tax laws are complex and subject to change. Your personal circumstances will significantly affect any tax liability. Always seek professional, regulated financial or legal advice tailored to your specific situation before making significant financial gifts or undertaking estate planning.