Gifting Money to Family: The Inheritance Tax Rules

By CareFinder Team · Published 2026-06-30 · Last reviewed 2026-09-18

In the UK you can give £3,000 a year free of inheritance tax, plus small gifts of up to £250 per person, wedding gifts and regular gifts from surplus income. Larger gifts are potentially exempt: if you live seven years after making them, they fall outside your estate. If you die sooner, they count towards your £325,000 threshold, and taper relief can reduce tax on gifts over it.

You can give money to your family during your lifetime, and much of it can pass free of inheritance tax. Some gifts are exempt straight away, such as the £3,000 annual exemption and regular gifts from surplus income. Larger gifts become completely free of inheritance tax if you live for seven years after making them.

These rules apply across the UK. They are general information: for large gifts, take advice from a solicitor or a regulated financial adviser.

How does inheritance tax work?

Inheritance tax is charged at 40% on the part of an estate above the nil-rate band of £325,000, according to GOV.UK. A further allowance can apply when a home passes to children or grandchildren. Gifts to a spouse or civil partner are normally exempt, and unused allowances can pass to them.

These thresholds are fixed until April 2031, as announced at Budget 2025. Gifts you make in the seven years before you die can use up part of the nil-rate band, leaving less for the rest of your estate.

Which gifts are tax-free straight away?

The GOV.UK gifts guide lists several exemptions. Gifts covered by them are free of inheritance tax whenever you die.

The annual exemption

You can give away £3,000 in total each tax year (6 April to 5 April), to one person or split between several. If you did not use all of it last year, you can carry the unused part forward, but only for one year.

Small gifts

You can give gifts of up to £250 to as many people as you like each tax year, as long as you have not used another allowance on the same person.

Wedding and civil partnership gifts

You can give a tax-free gift to someone getting married or forming a civil partnership. The limit is highest for your own children, lower for grandchildren and great-grandchildren, and lowest for anyone else. It can be combined with the annual exemption for the same person.

Regular gifts from surplus income

There is no upper limit on "normal expenditure out of income" if:

• the gifts are regular, such as monthly payments;
• they come from your income, not your savings; and
• you can still afford your usual living costs.

Examples on GOV.UK include paying rent for a child, paying into a savings account for a child under 18 and supporting an elderly relative. Keep records of your income and spending each year so your executors can show the gifts qualified.

Gifts to a spouse, civil partner or charity

These are normally exempt, whatever the amount.

What is the seven-year rule?

Other gifts to people are usually "potentially exempt transfers". GOV.UK says no tax is due on them if you live for seven years after giving them, unless the gift is into a trust.

If you die within seven years:

• the gift counts towards your £325,000 threshold first;
• if the gifts made in the seven years before death add up to more than the threshold, tax may be due on the excess;
• taper relief reduces the tax on gifts made three to seven years before death.

Taper relief only helps where gifts in the seven years before death exceed the threshold. Smaller gifts don't get taper relief; they simply use up part of the threshold.

Who pays the tax on a gift?

According to GOV.UK, any inheritance tax due on gifts is usually paid by the estate. But once gifts in the seven years before death add up to more than £325,000, the people who received gifts over that amount have to pay tax on them. It is worth telling a family member receiving a large gift about this.

What are the traps to avoid?

Gifts you still benefit from

If you give something away but carry on using it, such as giving your home to your children and continuing to live there rent-free, it is a gift with reservation. It still counts as part of your estate, and the seven-year rule does not apply.

Capital Gains Tax

Giving away cash does not trigger Capital Gains Tax. Giving away other assets, such as shares or a second property, can, because it is treated as if you sold them at market value. See GOV.UK on using market value for gifts.

Gifts into trusts

Putting money into most trusts can create an immediate inheritance tax charge above the threshold, and trusts have their own ongoing tax rules.

Care fees

Inheritance tax and care fees follow different rules. If you later need care, the council can treat money you gave away as still yours if avoiding care charges was a significant reason for the gift and you could have expected to need care. This is called deprivation of assets, and unlike inheritance tax there is no seven-year limit. Keep enough for your own future needs.

How should you plan gifts sensibly?

1. Use the annual and small gift exemptions each year.
2. If you have surplus income, consider regular gifts from income and keep records.
3. Make larger gifts earlier rather than later, so the seven-year clock starts sooner.
4. Keep a simple record of every gift: what, to whom, when and its value.
5. Think about your own future needs, including care.
6. Take advice before giving away property or large sums.

Frequently asked questions

How much can I give my children tax-free each year?

You can give £3,000 in total under the annual exemption, plus unlimited regular gifts from surplus income. Other gifts become tax-free if you survive seven years.

Do my children pay tax on money I give them?

Not normally when they receive it. If you die within seven years and your gifts in that period exceed the threshold, recipients of the gifts above it may have to pay inheritance tax.

Can I give my house to my children to avoid inheritance tax?

Only if you move out, or pay a full market rent and your share of the bills. Otherwise it is a gift with reservation and stays in your estate. There can also be Capital Gains Tax and care fee consequences.

Does the seven-year rule apply to care fees?

No. Councils can look at gifts from any time if they believe avoiding care charges was a significant reason for them.

What records should I keep?

Record what you gave, to whom, the date and the value. For regular gifts from income, keep a yearly note of your income and spending to show they came from surplus income.

Key takeaways

• The annual exemption, small gifts, wedding gifts and regular gifts from surplus income are free of inheritance tax straight away.
• Other gifts to people fall outside your estate after seven years.
• Taper relief only reduces tax where gifts in seven years exceed £325,000.
• Gifts you keep benefiting from stay in your estate.
• Care fee rules on gifts have no seven-year limit.
• Keep records and take advice before large gifts.