Helping family during your lifetime is often more valuable than leaving it in a will. It can also reduce inheritance tax — provided it is done in a way that actually works.
- Everyone has a £3,000 annual gifting exemption, which can carry forward one year.
- Larger gifts usually fall outside your estate after seven years.
- Regular gifts from surplus income can be immediately exempt if documented.
- Keeping a record is what makes the exemptions provable later.
What gifting allowances can you use each year?
- £3,000 a year can be given away with no inheritance tax implications. Unused allowance can be carried forward one year only.
- £250 per person per year to as many people as you like, provided they have not benefited from your £3,000.
- Wedding gifts — up to £5,000 to a child, £2,500 to a grandchild.
- Gifts from surplus income — potentially unlimited, if regular and genuinely from income you do not need.
How does the seven-year rule on gifts work?
Larger one-off gifts generally leave your estate entirely if you survive seven years. Die within that window and they may be brought back into the calculation, though taper relief can reduce the tax after three years.
What are the most common gifting mistakes?
Three mistakes come up repeatedly. Giving away money that is later needed for care or retirement income. Giving with strings attached, which can mean it never leaves the estate at all. And giving without records, so the executors cannot evidence the exemption.
What records do you need to prove a gift was exempt?
The surplus income exemption is genuinely valuable and widely under-used, largely because it requires evidence — a simple record of income, expenditure and the gifts made. A spreadsheet and a letter is usually enough. Without it, the exemption is difficult to claim.
Can you afford to make the gift in the first place?
Before any of this, the question is whether you can afford it — for the rest of your life, including a period of care. Cash-flow modelling answers that far better than instinct.
Source: the exemptions, the seven-year rule and taper relief are set out on GOV.UK, Inheritance Tax: rules on giving gifts.
This article is general information, not personal advice. Tax treatment depends on individual circumstances and may change in future. The Financial Conduct Authority does not regulate inheritance tax planning, trusts or will writing. The information contained within this article was accurate at the date of publication and is subject to change. Reviewed by Bright Wealth before publication.