Gifting money to family
Gifting money to family: how it works
Gifting money to family lets you see loved ones enjoy it now, whether that is a first home, a wedding or a grandchild's education. Planned well, it can also reduce inheritance tax.
The person receiving a gift does not normally pay tax on it. The question is what happens if you die within seven years of a large gift, as it may then count towards your estate.
Tax-free gifts at a glance
| Type of gift | How much | Key rule |
|---|---|---|
| Annual allowance | £3,000 a year | One unused year can be carried forward |
| Small gifts | £250 per person | Not to someone who had your £3,000 |
| Wedding gifts | £5,000 / £2,500 / £1,000 | To a child, grandchild or anyone else |
| Regular gifts from income | No set limit | Must not affect your standard of living |
| Spouse or charity | Usually unlimited | Some limits for non-UK spouses |
Gift allowances explained
Some gifts are tax-free straight away, however soon you die. Using them every year is one of the simplest ways to plan ahead.
- £3,000 a year, split between as many people as you like. The tax year runs from 6 April to 5 April.
- £250 gifts to as many different people as you like, such as birthday money for grandchildren.
- Wedding gifts, made on or shortly before the day.
Regular gifts from spare income
This is one of the most valuable and least used allowances. There is no set limit, as long as the gifts are regular, come from income rather than savings, and leave you enough to live as normal. Keep bank statements and a simple record to prove it.
Larger gifts and the seven-year rule
Larger gifts become completely tax-free if you live for seven years after making them.
If you die sooner, the gift is added back into your estate and uses up your £325,000 tax-free allowance first. If your gifts add up to more than £325,000, the tax on the excess falls the longer you lived:
- Less than 3 years: 40%
- 3 to 4 years: 32%
- 4 to 5 years: 24%
- 5 to 6 years: 16%
- 6 to 7 years: 8%
- 7 years or more: nothing
Example: Margaret gives her son £400,000 and dies four and a half years later. The first £325,000 is covered. The other £75,000 is taxed at 24%, so £18,000 is due, usually paid by her son.
Gifts that can go wrong
Not every gift saves tax, and some cause new problems. These are the most common mistakes.
- Giving away your home but still living in it rent-free. It usually still counts as yours.
- Forgetting capital gains tax. Giving away property or shares that have risen in value can trigger it.
- Gifting to avoid care fees. The council can treat you as still owning the money.
- Giving away too much. Keep enough for your own future, including care.
- Large gifts with no protection. Money could be lost in a child's divorce. A loan or trust may protect it.
Keeping records and planning your gifts
Your executors must tell HMRC about gifts made in the last seven years, so good records make their job far easier.
For each gift, note the date, who received it, how much it was and which allowance you used. For regular gifts, keep a yearly note of your income and spending.
You can also leave gifts in your will. Leaving at least 10% to charity can cut the inheritance tax rate on the rest to 36%. Make sure your gifts and your will work together.
When to get advice
- You plan to give away a large sum, property or shares.
- You want to help a child or grandchild buy a home.
- Your estate may be over the allowances. Check with our calculator.
How PJH Estate Planning can help
PJH Estate Planning can help you plan gifts that suit your budget, keep the right records and make sure your gifts and your will work together. Find out what you could face in your current situation with our free Estate Health Check: 10 quick questions that show any gaps in your plans. You can visit our offices, or we can visit you at home.
Sources
General information as at October 2026. Not tax, legal or financial advice.