FOR ADVISERS ONLY
Inheritance tax exemptions for gifts
There’s usually no Inheritance Tax to pay on small gifts made out of normal income, such as Christmas or birthday presents. These are known as ‘exempted gifts’.
There’s no Inheritance Tax to pay on gifts between spouses or civil partners. A spouse or civil partner can give their partner as much as they would like during their lifetime, as long as they live in the UK permanently.
If an individual gifts more than £325,000 in the 7 years before their death the recipients will be charged Inheritance Tax.
What counts as a gift?
A gift can be:
- anything that has a value, such as money, property, possessions
- a loss in value when something’s transferred, for example if a house is sold to a child for less than it’s worth, the difference in value counts as a gift.
| Type of gift | Amount per tax year |
|---|---|
| Annual exemption1 | £3,000 |
| Wedding or civil ceremony gifts (child) | £5,000 |
| Wedding or civil ceremony gifts (grandchild or great-grandchild) | £2,500 |
| Wedding or civil ceremony gifts (not a child, grandchild or great-grandchild) | £1,000 |
| Normal gifts | Must be able to maintain standard of living after making the gift |
| Payments to help with another person’s living costs, such as an elderly relative or a child under 18 | No limit |
| Gifts to charities and political parties | No limit |
| Small gifts | Up to £250 per person during the tax year as long as no other exemption has been used on the same person |
1 It is possible to carry any unused annual exemption forward to the next tax year, but only for one year.
The 7 year rule
If there’s Inheritance Tax to pay, it’s charged at 40% on gifts given in the 3 years before death.
Gifts made 3 to 7 years before death are taxed on a sliding scale.
| Years between gift and death | Tax paid |
|---|---|
| less than 3 | 40% |
| 3 to 4 | 32% |
| 4 to 5 | 24% |
| 5 to 6 | 16% |
| 6 to 7 | 8% |
| 7 or more | 0% |
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