In 2026/27 you can give away £3,000 each tax year completely free of Inheritance Tax (IHT), and if you did not use last year's allowance you can carry it forward once, so up to £6,000 in a single year. On top of that you can make unlimited £250 small gifts to different people, give tax-free wedding gifts, gift unlimited amounts to your spouse or a charity, and make regular gifts out of surplus income. Larger one-off gifts are usually tax-free too, as long as you live for 7 years afterwards.
That is the short answer. Below is exactly how each allowance works, two worked examples, and the traps to avoid, including the one that catches most people: gifting an asset rather than cash can trigger Capital Gains Tax for you even when there is no IHT to pay.
The quick context: how IHT works in 2026/27
IHT is charged at 40% on the value of your estate above your tax-free threshold. Everyone has a nil-rate band (NRB) of £325,000. If you leave your main home to your children or grandchildren, you may also get the residence nil-rate band (RNRB) of £175,000. Both are frozen until 5 April 2031.
Put together, an individual can pass on up to £500,000 with no IHT, and a surviving spouse or civil partner up to £1 million, because unused allowances transfer between spouses. Gifting during your lifetime is one of the main legitimate ways to keep an estate below those thresholds, which is why the exemptions below matter.
Why the £3,000 allowance feels so small
The £3,000 annual exemption has been frozen at that level since 1981. According to analysis by campaigners, it has lost roughly 78% of its real value over that period; had it simply tracked inflation it would be worth around £13,600 today. It has not moved, so in practice most tax-free gifting now relies on combining several exemptions rather than leaning on the annual allowance alone. Knowing the full toolkit is what makes the difference.
The tax-free gifting allowances at a glance
Here are the main IHT gift exemptions for 2026/27. Each is separate, and several can be stacked in the same tax year.
| Exemption | Limit (per giver, per tax year) | Key condition |
|---|---|---|
| Annual exemption | £3,000 (up to £6,000 if last year's is unused) | Carry-forward to the next year only |
| Small gifts | £250 per recipient, unlimited recipients | Cannot be combined with another exemption on the same person |
| Wedding / civil partnership gift | £5,000 parent · £2,500 grandparent · £1,000 anyone else | Given on or shortly before the wedding; can add to the annual exemption |
| Normal expenditure out of income | Unlimited | Regular, out of surplus income, leaves your lifestyle unaffected |
| Spouse / civil partner | Unlimited | Both UK-domiciled |
| Charity / political party | Unlimited | UK-registered charity or qualifying party |
The £3,000 annual exemption
This is your headline tax-free allowance. You can give away £3,000 in total each tax year, to one person or split between several, with no IHT implications at all. If you did not use any of it last year, you can carry that unused amount forward, but for one year only, giving a maximum of £6,000. You must use the current year's allowance first, then last year's.
The £250 small gifts exemption
You can give up to £250 to as many different people as you like, free of IHT. The catch is that you cannot combine it with another exemption on the same person. So if you have already given someone your £3,000 annual exemption, you cannot also give them a tax-free £250. It works best spread across many recipients, for example a set of grandchildren, nieces and nephews.
Wedding and civil partnership gifts
If someone close to you is marrying, you can give a tax-free wedding gift of up to £5,000 if you are their parent, £2,500 as a grandparent or great-grandparent, or £1,000 as anyone else. This can be added to your £3,000 annual exemption to the same person, but not to the £250 small gifts exemption for that person.
Normal expenditure out of income
This is the most powerful and most overlooked exemption. Regular gifts made out of your surplus income (not from capital or savings) are immediately exempt with no upper limit, as long as they are part of a normal pattern and leave you able to maintain your usual standard of living. Think of standing orders into a grandchild's savings or paying school fees. Keep clear records of income versus outgoings, because HMRC will expect evidence.
Spouse, civil partner and charity gifts
Gifts between UK-domiciled spouses or civil partners are exempt without limit, whether made in life or on death. Gifts to UK-registered charities and political parties are also completely exempt. If you are moving assets between spouses, read our guide to gifts between spouses and the CGT and IHT rules first.
What about bigger gifts? The 7-year rule
Any gift above these exemptions is a potentially exempt transfer (PET). There is no IHT to pay when you make it, and it becomes fully tax-free if you survive 7 years. If you die within those 7 years, the gift is added back into your estate and counts against your nil-rate band. This is where taper relief can help, but only in specific circumstances.
How does taper relief work?
Taper relief reduces the IHT due on a gift where you die between 3 and 7 years after making it. Crucially, it only applies where the total of your gifts in the 7 years before death exceeds the £325,000 nil-rate band, and it only reduces the tax on the portion above that band. Many people assume every gift is tapered, but if your gifts sit within the £325,000 NRB there is no tax to taper in the first place.
| Years between gift and death | Rate of IHT on the gift (above the NRB) |
|---|---|
| 0 to 3 years | 40% (no reduction) |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7+ years | 0% (fully exempt) |
Worked example: stacking exemptions in one tax year
Say Priya's daughter is getting married this year, and Priya also wants to help her grandchildren. In 2026/27 Priya gives:
- A £5,000 wedding gift to her daughter (parent's wedding allowance).
- Her £3,000 annual exemption, also to her daughter (allowed on top of the wedding gift).
- £250 each to five grandchildren under the small gifts exemption, totalling £1,250.
Total given away tax-free this year: £9,250, all immediately outside her estate with no 7-year wait and no IHT. Note she could not also give any of those five grandchildren an extra £250 small gift on top of a different exemption to the same child, but as separate people each £250 stands on its own.
Worked example: a large gift and taper relief
Now imagine Tom gives his son a cash gift of £400,000 and makes no other gifts. He dies 4.5 years later. Because the gift exceeds the £325,000 nil-rate band, the first £325,000 is covered by his NRB and the remaining £75,000 is taxable. At 4 to 5 years, taper relief cuts the rate to 24%. The IHT on that £75,000 is therefore £75,000 × 24% = £18,000, rather than £30,000 at the full 40%. Had Tom survived 7 years, the whole £400,000 would have been tax-free.
The trap: gifting an asset can trigger Capital Gains Tax
An exemption from IHT does not mean an exemption from all tax. If you give away an asset rather than cash, for example shares or a second property, that counts as a disposal at market value for Capital Gains Tax, even though no money changed hands. You, the giver, could face a CGT bill on the gain since you acquired it. This surprises a lot of people who thought they were making a clean gift.
Before gifting anything other than cash, work through the CGT position: see our complete guide to Capital Gains Tax, or the shorter how much is Capital Gains Tax, and estimate the bill with our Capital Gains Tax calculator. If the asset is a let property you have inherited or plan to pass on, our guide to tax on an inherited rental property covers the interaction in more detail.
Practical tips to gift tax-efficiently
- Use the annual exemption every year, and carry forward once if you missed last year.
- Spread £250 small gifts across many people rather than doubling up on one.
- Set up regular gifts from surplus income and keep an income-and-expenditure record.
- For large PETs, note the date, keep evidence it was a genuine gift, and track the 7-year clock.
- Never gift an asset without checking the CGT position first.
Gifting rules are simple in isolation but easy to trip over when you combine them or mix cash with assets. If you want a plan tailored to your estate, book a free call with Zmartly and we will map out the exemptions that apply to you.
Frequently asked questions
How much can I give my children tax-free?
You can give each child up to your £3,000 annual exemption per year (or up to £6,000 if last year's was unused), plus wedding gifts of up to £5,000 as their parent, plus regular gifts out of surplus income with no limit. Larger one-off gifts are tax-free too if you survive 7 years.
Does the person receiving a gift pay tax?
No. In the UK the recipient does not pay Inheritance Tax on a gift. Any IHT that becomes due (if the giver dies within 7 years and the gift exceeds the nil-rate band) is charged against the giver's estate, not the person who received it.
Can I give away my home?
You can, but be careful. If you continue to live in it rent-free it is treated as a "gift with reservation of benefit" and stays in your estate for IHT. Giving away property can also trigger Capital Gains Tax for you. Take advice before gifting a home.
What happens if I die within 7 years of a gift?
The gift is added back into your estate and set against your £325,000 nil-rate band. Only if your total gifts in those 7 years exceed the band is there tax on the excess, and taper relief may then reduce it on a sliding scale between years 3 and 7.
Sources
- gov.uk: Inheritance Tax on gifts (annual exemption, small gifts, wedding gifts, 7-year rule, taper relief)
- gov.uk: Inheritance Tax thresholds (nil-rate band and residence nil-rate band frozen to 2031)
- gov.uk: Work out Inheritance Tax due on gifts
- gov.uk: IHT manual, normal expenditure out of income (IHTM14243)
- gov.uk: IHT manual, small gifts exemption (IHTM14180)
