How much can you give away without inheritance tax?

Inheritance tax is a tax on the estate (the property, money and possessions) of someone who has died¹. You can give away £3,000 in total each tax year without that money counting towards your estate for inheritance tax². A couple can usually give away £6,000 a year between them, and up to £12,000 if neither made substantial gifts in the previous tax year².

Gifts above those allowances are not taxed when you make them. They become "potentially exempt transfers": they fall outside your estate if you live for seven years after making the gift, and if you die within those seven years the value is brought back in and may be taxed⁴. The tax is worked out against your £325,000 nil-rate band, and the rate on the gift depends on how long before death it was made⁶.

The annual exemption: £3,000 a year tax-free

The annual exemption is the simplest allowance. You can give away up to £3,000 in total in a tax year, whether as cash or as gifts, without any inheritance tax to worry about⁸. The allowance is per person, not per gift, so it covers everything you give in the year up to that figure².

Alongside it sits the small gifts exemption: £250 per recipient per year, for people who have not benefited from your annual exemption². That means you can give £250 each to as many different people as you like, and those gifts do not use up your £3,000. The two allowances work separately, so a gift of £250 to someone who also receives part of your annual exemption does not qualify for the small gifts exemption.

There is also a wedding gift allowance. If you are off to a wedding, you can give up to £1,000 as a gift without needing to worry about inheritance tax¹². The amount depends on your relationship to the couple, and the allowance applies to the wedding itself rather than to any other occasion.

Gifts out of your income can be exempt too, if they are made from income rather than capital, follow a regular spending pattern, and do not damage your standard of living⁹. One-off amounts are unlikely to qualify, and the money cannot come from the sale of assets⁹. There is no upper limit on this exemption, but HMRC expects the pattern to be established, and gifts out of income totalling more than £3,000 in any year must be shown in full¹³.

Can a married couple each give away £3,000 a year?

Yes. Because the annual exemption is per person, a couple can usually give away £6,000 per year as standard². Each partner has their own £3,000 allowance, and neither needs the other's permission to use it.

There is a further step. You can carry forward any unused allowance from the previous tax year, which allows you to give away up to £6,000 tax-free in a single year¹⁴. The annual exemption can be backdated by one year, so in theory a couple could give away £12,000 in a tax year if they have not gifted in the previous year³. The carry-forward only works for one year: an allowance unused for longer than that is lost.

In practice this means the timing of gifts matters as much as the amount. A couple who give nothing in one tax year and then make a large gift the next can use two years of allowances at once. A couple who give the same amount every year simply use the standard £6,000.

Gifts above the allowance and the seven-year rule

Anything above your allowances is a potentially exempt transfer. Money you give away in excess of these allowances will fall outside of your estate if you live for seven years after making the gift⁵. The same applies to any gifts you make above the limits: they fall outside your estate if you live for seven years after¹⁵.

If you survive for seven years after making the gift, no inheritance tax is due¹¹. If you die within that time, the gift is considered part of your estate¹¹. The gift is generally applied to the £325,000 allowance before the rest of the estate, which can change how much tax the estate itself pays⁹.

The seven-year clock runs from the date of each gift, not from the date of your last gift. If you make several large gifts over several years, each has its own seven-year period, and the executor will need to work through them in date order. That is why a simple record of what was given and when matters.

Gifts to a spouse or civil partner are exempt

Transfers between spouses or civil partners, whether during lifetime or on death, are exempt from inheritance tax¹⁶. Anything left to a surviving spouse or civil partner is exempt from inheritance tax¹⁷. This applies to gifts made while both are alive as well as to what is passed on in a will.

The exemption has a condition: assets left to a spouse or civil partner are exempt provided both partners are domiciled in the UK¹⁴. Where one partner is not UK-domiciled, the exemption can be limited, and the rules are more complicated. For most couples who are both UK-domiciled, the exemption is straightforward.

The effect on the nil-rate band is significant. If you leave your estate to your spouse, they can pass on up to £1m tax-free¹⁰. That figure combines the £325,000 nil-rate band, the transferable allowance from the first spouse to die, and the residence nil-rate band where a home is passed to direct descendants. The £325,000 nil-rate band is the starting point: an estate worth more than £325,000, or £650,000 for married couples and civil partners, may pass some of its value to inheritance tax².

Where giving something away does not take it out of your estate

Some gifts stay in your estate even though you have handed the asset over. If you give something away but still benefit from it, a "gift with reservation", it will still count towards the value of your estate¹¹. The classic example is a home. If you give away your home but continue to live in it rent-free until your death, you will be deemed to be the beneficial owner, and it remains in your estate⁷.

The same principle applies to other assets. Giving away a painting but keeping it on your wall, or transferring a share portfolio while still drawing the income, can leave the value in your estate. To take the asset out, you generally need to give up the benefit entirely, or pay a market rent or price for continuing to use it.

There are also gifts that are exempt outright, so they never enter the calculation. You will not have to pay inheritance tax on gifts to UK-established charities, national museums, universities, the National Trust, political parties broadly those represented in parliament with at least two MPs, registered housing associations, or community amateur sports clubs¹¹. Gifts to your husband, wife, civil partner or a charity usually do not attract tax¹⁸.

Where an estate is below the threshold, no inheritance tax is due at all¹. The value of the estate is measured against the threshold, and if it falls below, the question of which gifts count does not arise.

Who pays tax on a gift if you die within seven years

If you die within seven years of making a gift above your allowances, the gift is brought back into the calculation. The personal representative (an executor or administrator) for the estate usually pays any inheritance tax due before giving you the inheritance¹⁵. Any inheritance tax due will usually be paid before you receive the inheritance¹.

The person who received the gift can also be liable. The rules cover the case where the person who died gave you a gift in the seven years before they died¹⁵. In practice, the estate pays first, but if the estate cannot meet the bill, HMRC can look to the recipient of the gift. That is a reason to keep records and to tell the executor what was given.

The rate charged on the gift depends on when it was made. A gift made more than seven years before death is charged at 0%⁶. A gift made six to seven years before death carries an effective rate of 8% on the gift⁶. The rate rises on a sliding scale the closer the gift is to the death, and the tax is worked out on the gift's value above the available nil-rate band.

For land and buildings, there is a payment option. You can pay inheritance tax in instalments as long as you do not sell the land or building, and this applies even if you rent out the land or building and do not live there²⁰. That can help where a property is inherited but the estate has little cash.

Gifts, your estate and the £325,000 threshold

Everyone has a tax-free inheritance allowance worth £325,000, known as the nil-rate band¹⁴. The nil-rate band limit is £325,000²¹. If your estate is worth more than £325,000, or £650,000 for married couples and civil partners, some of it may pass to inheritance tax².

Gifts interact with that threshold in two ways. First, gifts within your allowances reduce the estate immediately and are never brought back. Second, gifts above your allowances are brought back if you die within seven years, and they are generally applied to the £325,000 allowance before the rest of the estate⁹. That ordering can mean the gift uses up allowance that would otherwise have sheltered the estate.

The transferable allowance matters here. A deceased spouse's unused allowance can be claimed, assuming that he made no taxable gifts to other people during the seven years prior to his death⁴. Gifts made in the seven years before the first death can therefore reduce what is available to transfer, which is one reason to keep the seven-year window in mind when planning.

Charitable giving changes the rate. If you leave at least 10% of your net estate to charity you may qualify to pay inheritance tax at a reduced rate¹. If you leave 10% or more of your net estate to charity, the overall inheritance tax rate is reduced to 36%²². Any money you leave to charity will be exempt from inheritance tax²³. The 10% is measured against the net estate, so the figures need to be worked through carefully.

Pensions and inheritance tax from April 2027

Pensions are the biggest change on the horizon. From 6 April 2027, any unspent pensions will count towards the value of your estate when inheritance tax is calculated¹⁰. From April 2027, regardless of your age when you die, inheritance tax may be charged on money left in your pension if the value of your overall estate exceeds the tax-free allowance²⁴.

Until then, pension pots are generally outside the estate. The change means the exemption for undrawn pension pots will be removed from 6 April 2027²⁵. Most unused pension funds and pension death benefits are expected to be included in the inheritance tax calculation on deaths from that date²⁶.

The treatment of inherited pension money also depends on age at death. In all other cases, including if you die after age 75, your pension usually cannot be inherited tax-free²⁷. The inherited amount is normally added to your beneficiary's other income to calculate how much income tax is due²⁷.

For anyone with a large pension and a large estate, the practical effect is that the pension can no longer be relied on to sit outside the inheritance tax calculation. Nominating a beneficiary still matters for who receives the money, but it does not remove the inheritance tax charge on the fund itself.

Keeping records and getting help

Keep a record of every gift above your allowances for at least seven years from the date you made it. The seven-year rule means the executor needs to know what was given, when, and to whom, and gifts out of income totalling more than £3,000 in any year must be shown in full¹³. A dated list, kept with your will, saves the estate a great deal of work.

A will is the starting point for anything you leave behind. Any money you leave to charity will be exempt from inheritance tax, and the will is where that is set out²³. If you are working through the figures, the grossing-up rules apply where some gifts are "free of tax" and some are not, or all gifts are "free of tax" and the residue is partly exempt²⁸. That is a calculation for the estate's adviser rather than something to work out by hand.

Free, impartial help is available. Inheritance Tax Support on mygov.scot sets out the position in Scotland¹. For general guidance on inheritance tax, thresholds and who pays, see Inheritance tax: thresholds, rates and who pays. For the seven-year rule in more detail, see Gifts and inheritance tax: the seven-year rule. For regular gifts from surplus income, see Regular gifts from surplus income and inheritance tax. For married couples and civil partners, see Inheritance tax for married couples and civil partners.