Tax-efficient ways to gift
A Boring Money reader asked how she could gift money to her children in a tax-efficient way while reducing the risk of a future Inheritance Tax bill — here’s our answer.
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Each tax year (6 April to 5 April), you can give away up to £3,000 in total without it being counted towards your estate for inheritance tax (IHT) purposes.
This is per donor, not per recipient.
If you did not use this allowance in the previous tax year, you can carry it forward one year only, allowing up to £6,000 in the current year.
The current year’s allowance is always used first before any unused allowance from the previous year.
The Financial Conduct Authority (FCA) does not regulate some aspects of Trust, Tax and Estate Planning.
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You may also give up to £250 per person per tax year to as many individuals as you like, provided they do not also benefit from any part of your £3,000 annual exemption in the same tax year.
The Financial Conduct Authority (FCA) does not regulate some aspects of Trust, Tax and Estate Planning.
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These are in addition to the £3,000 annual exemption:
£5,000 to a child
£2,500 to a grandchild or great-grandchild
£1,000 to anyone else
The gift must be made on or shortly before the date of the wedding or civil partnership.
The Financial Conduct Authority (FCA) does not regulate some aspects of Trust, Tax and Estate Planning.
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If you have regular surplus income after covering all normal living expenses, you can make gifts of any size from this surplus that are immediately exempt from IHT.
To qualify:
Gifts must be regular (e.g., monthly, annually, or following a clear pattern).
They must come from post-tax income (salary, pension, dividends, rental income), not capital.
They must not reduce your standard of living.
You must keep detailed records to show your intention, amounts, and regularity, ideally with professional help.
The Financial Conduct Authority (FCA) does not regulate some aspects of Trust, Tax and Estate Planning.
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Once you have used the exemptions above, you may wish to consider larger gifts.
If you survive for seven years after making the gift, it is no longer counted as part of your estate for IHT.
If you die within seven years and the total value of gifts made in that period exceeds the nil-rate band (£325,000 for 2025/26), IHT may be due. Gifts are assessed in chronological order (oldest first).
Taper relief may reduce the tax due (not the value of the gift) if death occurs more than three years after the gift.
PETs require you to give up all control and benefit. For example, giving away your home but continuing to live in it without paying full market rent would trigger the “gift with reservation” rules, making it still count towards your estate.
There is no need to report PETs to HMRC unless you die within seven years.
The Financial Conduct Authority (FCA) does not regulate some aspects of Trust, Tax and Estate Planning.
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For larger estates or where seven years may not be available due to age or health, other strategies can be considered:
Trusts for structured gifting and control.
Business Relief (BR) qualifying investments
BR-qualifying investments may offer up to 100% Inheritance Tax (IHT) relief after two years, provided they are still held at death. Because the assets remain in the investor’s name, it’s possible to retain access to them during your lifetime.
However, BR investments are high risk and only suitable for individuals with a high capacity for loss and a high tolerance for risk.
The Financial Conduct Authority (FCA) does not regulate some aspects of Trust, Tax and Estate Planning. The value of investments that qualify for Business Relief (BR) can fall as well as rise, and you may not get back the amount you invest. BR-qualifying investments are typically in unquoted or AIM-listed companies, which may be harder to sell, more difficult to value, and more likely to fail than larger, established companies. Tax rules can change, and the availability of any relief depends on your individual circumstances and on the investment being held for at least two years and at the time of death. There is no guarantee that a BR-qualifying investment will maintain its eligibility in the future.
You should not invest in BR-qualifying assets unless you have a high capacity for loss, a high tolerance for investment risk, and are prepared to accept the possibility of losing all the money invested. These strategies should only be considered after taking regulated financial advice from a suitably qualified adviser who has assessed your personal situation.
