Gift tax in the UK

In the UK, gifting money to your loved ones is pretty easy, but it’s important to bear in mind that some monetary gifts might be subject to gift tax (also known as inheritance tax). On this page, you’ll learn everything you need to know about gifting money in the UK, including how much you can gift tax-free, giving cash gifts to children and which types of gifts are excluded for tax purposes.

A gift can be anything you give that has value, such as:

• Money
• Possessions like jewellery, antiques and furniture
• Property or land
• Stocks and shares listed on the London Stock Exchange
• Unlisted shares you held for less than two years before your death

It can also be something that has decreased in value. For example, if you sell your house for less than its actual value to your child, the difference in value can count as a gift.

Not all gifts are taxable, and there are certain types of gifts that are exempt from gift tax. However, this depends on who the gift goes to and how much money the gift is worth.

For example, you can give your spouse or civil partner as many gifts as you like during your lifetime and these will remain exempt from tax. You can also gift money and assets to your spouse or civil partner by leaving your estate to them. When a spouse or civil partner is the beneficiary of an estate, they are not subject to inheritance tax and are considered an ‘exempt beneficiary’.

Charities, trusts and national organisations can also be considered exempt beneficiaries, so any gift made to them will not be subject to tax.

There’s no limit on gifts made to exempt beneficiaries, but if you want to make a gift to someone who is not an exempt beneficiary, you have an annual tax-free allowance of up to £3,000 per person.

As of 2024/25, you’re entitled to an annual tax-free gift allowance of £3,000. This is also known as your annual exemption. With your annual gift allowance, you can give away assets or money up to a total of £3,000 without them being added to the value of your estate.

If you don’t use your full gift allowance in one year, you’re allowed to roll it over to the following year. You’re only allowed to do this once, so you couldn’t roll any allowance you haven’t used over for a second year.

Once you’ve exceeded your annual tax-free gift allowance, the gifts you give may be subject to inheritance tax in the event of your death. However, this only applies if you die within seven years of giving a gift (more on this later). If you live for longer than seven years after giving the gift, no tax is payable (unless it’s part of a trust).

How much you choose to give in cash gifts to your children is entirely up to you. However, if you want to guarantee that your gift is tax-free, it will need to be covered by your £3,000 annual exemption. Of course, that doesn’t mean you can’t give them more than this – you simply need to be mindful of the timing.

If you give cash gifts to your children of more than £3,000 in any one tax year, you’ll need to live for more than seven years after making your gift to avoid it being included in the value of your estate (and therefore potentially liable to inheritance tax). This is known as a potentially exempt transfer, or PET. If you die within seven years of making the monetary gift, it may be subject to inheritance tax. The amount of tax charged depends on when the gift was made (see table below).

If you do intend to give a monetary gift to your children, you’ll need to keep a record of the nature of the gift, who you gave it to, when you gave it and how much it was worth.

It’s also important to remember that even if your gift is exempt from inheritance tax, any income or gains arising from it could have other tax implications for your children, for example, capital gains tax.

Yes, some gifts are exempt from inheritance tax. Some of the types of gifts that are excluded from gift tax in the UK include the following:

• ‘Everyday’ gifts that you take out of your income to give as Christmas or birthday presents, or, in some instances, when you gift money to your children. In order to remain exempt, once you’ve given the gift, you must still be able to maintain your usual standard of living.
• You can give any number of small gifts worth £250 or less during each tax year, providing you haven’t already used another allowance on the same person.
• Wedding gifts, such as cash gifts, are exempt, although this depends on your relationship with the recipient. If you’re a parent, you can give a gift worth up to £5,000. If you’re a grandparent, it’s up to £2,500. If you’re friends or a member of the family, then you can only give gifts that are worth up to £1,000.
• Payments that are aimed at helping another person’s living costs can also be exempt from gift tax. The recipient of this type of gift might be an elderly relative or a child who’s under the age of 18.
• Gifts to political parties are exempt from tax as long as two or more members of the party were elected to the House of Commons, or only one member was elected and the party received at least 150,000 votes.
• Charitable donations and gifts to institutions such as art galleries, museums and heritage funds are also exempt from gift tax. In fact, giving to a registered charity may be a good way to reduce your income tax liability, particularly if you’re a higher rate or additional rate taxpayer.

Yes, the timing of your gift matters. A gift you give someone more than seven years before you die is exempt from inheritance tax.

Any gift that you give seven years or less before your death will be liable for inheritance tax, but this will be at a reduced rate depending on the number of years it is since you gave the gift. This is known as taper relief. This table shows how much tax you’ll need to pay based on the number of years between giving the gift and death:

Taper gift tax relief doesn’t necessarily reduce the value of your gift, but it does reduce the amount of tax payable. It’s important to include this information when you file a self-assessment tax return with HMRC.

Whether you’ll need to pay tax on gift money from parents depends on the nature of the gift and when it was made. As we’ve already explained, some types of monetary gifts are exempt from inheritance tax. If you receive what are considered to be everyday small cash gifts, for example, money for your birthday or as a Christmas present, you won’t need to pay tax on it (providing it doesn’t affect your parents’ living standards).

When considering tax on cash gifts, it’s important to remember that everyone has a £3,000 annual gift exemption. In theory, this means that every parent can give up to £3,000 in tax-free cash gifts to their children every year. It’s important to note, however, that the £3,000 allowance applies to the total value of all cash gifts. So if they’ve already gifted £2,000 to other siblings or family members, they will only be able to give another £1,000 tax-free.

Your parents can also gift you up to £5,000 tax-free if you get married. If they choose, they can combine this with their £3,000 annual gift allowance (assuming they haven’t already used it), meaning they can potentially give a cash gift of up to £8,000 tax-free.

Of course, you can receive monetary gifts of more than the amounts referenced above but your parents will need to survive the gift by seven years in order to guarantee that it will be exempt from tax. If your parents pass away within seven years of making the gift, the value of the gift is added back into their estate when calculating inheritance tax. As shown in the table above, the rate of tax payable depends on the number of years between their death and when you received the money.

Even if you don’t need to pay inheritance tax on gifts from parents, bear in mind that there may be other tax implications to consider. Income or gains arising from the gift could result in a capital gains tax charge for instance.

If you’re thinking of giving cash gifts to your children or other family members, it might be a good idea to open a competitive savings account. This means you can put away a small amount of money each month and then gift a lump sum at the end of the year. Not only is saving all year round often more convenient and affordable, but it’s also a great way to earn interest and increase the value of your gift.

From easy access accounts to notice accounts and fixed rate bonds, you’ll find a great range of savings accounts in our marketplace. Simply register for a free Raisin UK Account through the website or via our app, apply for your chosen savings account and transfer your deposit. Then sit back and watch your savings grow.