Gifting money to family: rules and inheritance tax
Gifting money to family can reduce inheritance tax, but only within set rules. Some gifts are exempt straight away, such as the £3,000 annual exemption. Larger gifts are usually free of inheritance tax if you live for seven years after making them. If you die sooner, they may be counted in your estate.
This guide is general information, not tax or financial advice. Gifting is hard to undo, so it is worth thinking about your own future needs, including possible care costs, before giving money away.
Inheritance tax basics
Inheritance tax is usually charged at 40% on the part of an estate above the nil-rate band of £325,000 (2026/27). A further residence nil-rate band of up to £175,000 (2026/27) may apply when a home passes to children or grandchildren; it tapers away for larger estates. Anything left to a spouse or civil partner is normally exempt.
Gifts that are exempt straight away
- Annual exemption: £3,000 each tax year, shared across recipients. Any unused amount can be carried forward one tax year only.
- Small gifts: up to £250 per person per tax year, to anyone who has not had another exempt gift from you that year.
- Wedding or civil partnership gifts: up to £5,000 to a child, £2,500 to a grandchild, or £1,000 to anyone else.
- Gifts from surplus income: regular gifts from income (not savings) that leave you enough to keep your usual standard of living.
The 7-year rule and gifting money to family
A gift above these exemptions is a potentially exempt transfer. If you live for seven years after making it, it falls outside your estate. If you die within seven years, it is added back and uses up your nil-rate band first.
How taper relief works
Taper relief only applies if gifts made in the seven years before death add up to more than the nil-rate band. It reduces the tax on the gift, not its value:
- 0 to 3 years before death: 40%
- 3 to 4 years: 32%
- 4 to 5 years: 24%
- 5 to 6 years: 16%
- 6 to 7 years: 8%
If total gifts stay within the nil-rate band, no tax is due on the gifts themselves, but less of the band is left for the rest of the estate.
Gifts with reservation of benefit
If you give something away but keep benefiting from it, such as giving your home to your children and living there rent-free, it is usually still treated as part of your estate. Our guide to selling to family covers related property questions.
Keep a record of each gift
Executors must report gifts from the seven years before death. A simple note of the date, amount, recipient and exemption used can save your family time and uncertainty. For gifts from surplus income, records of your income and spending help show the gifts were affordable.
Gifting released equity
Some homeowners use equity release to give family money during their lifetime. The loan is deducted from the estate and gifts may fall outside it after seven years, but interest compounds on the loan, the estate shrinks, and means-tested benefits can be affected. See equity release and inheritance tax.
Gifts and care funding
Inheritance tax rules and care funding rules are separate. If a council decides money was given away to avoid care costs, it can treat you as still having it, with no seven-year cut-off. See paying for care.
Getting advice
A tax adviser or solicitor can explain how gifts fit your estate. If equity release is involved, an FCA-regulated adviser is also required. If you may one day need someone to manage gifts for you, lasting power of attorney is worth reading.
Not sure which option fits your circumstances?
Written and reviewed by the Later Life editorial team. Last updated .
Frequently asked questions
How much money can I give my children each year without inheritance tax?
You can give away £3,000 in total each tax year under the annual exemption, plus any unused amount from the previous year. On top of that, small gifts of up to £250 per person, wedding gifts and regular gifts from surplus income may also be exempt. Larger gifts are not taxed when made, but may be counted if you die within seven years.
Do my children pay tax on money I give them?
Usually not when they receive it. Inheritance tax on a gift only becomes relevant if you die within seven years and the gift is counted in your estate. If tax is then due on the gift, the person who received it may be asked to pay. Income or gains the money later produces may be taxable for them in the usual way.
Can I give my house to my children and keep living in it?
You can, but if you continue living there without paying a full market rent, it is usually treated as a gift with reservation of benefit and stays in your estate for inheritance tax. It may also be looked at under the deprivation of assets rules if you later need care. A solicitor or tax adviser can explain the implications first.
Do I need to report gifts to HMRC?
You do not normally report gifts when you make them. After a death, the executors must list gifts made in the previous seven years when dealing with the estate. Keeping a simple record of each gift, with the date, amount, recipient and any exemption used, can make that process much easier for your family.
Can I use equity release to give money to family?
Some homeowners do. Gifting released money reduces the estate, and the loan itself is also deducted, which may lower an inheritance tax bill. But interest builds up on the loan, the gift still falls under the seven-year rule, and it may affect care funding. Our guide to equity release and inheritance tax explains more.