Guide
Can you give money away to reduce Inheritance Tax?
Giving money away during your lifetime can reduce the Inheritance Tax your family pays. It works, but only if you follow the rules and can afford to do it.
Last reviewed 2 November 2026. General information, not legal advice. All guides
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The seven year rule
Most gifts to individuals are free of Inheritance Tax if you live for seven years after making them. If you die within seven years, the gift may be counted when your estate is taxed. Taper relief can reduce the tax on gifts made three to seven years before death, but only where your gifts are above the nil rate band. Inheritance Tax is normally charged at 40% on the value above your allowances.
Gifts that are exempt straight away
- Annual exemption. £3,000 each tax year. You can carry forward one unused year.
- Small gifts. £250 to any number of people, provided you have not used another exemption on the same person.
- Wedding gifts. £5,000 to a child, £2,500 to a grandchild and £1,000 to anyone else.
- Regular gifts from surplus income. These must not reduce your standard of living, and you should keep records.
- Gifts to a spouse or civil partner and gifts to charity.
Mistakes to avoid
- Giving away your home but still living in it rent free. This is a gift with reservation, and it is still counted in your estate.
- Giving away more than you can afford. You may need the money for care or later life.
- Gifting to avoid care fees. Councils can treat this as deliberate deprivation. See our guide on protecting your home from care fees.
- Forgetting Capital Gains Tax when gifting assets that have gone up in value.
- Not keeping records. Your executors will need them.
Allowances change
The nil rate band is currently £325,000 and the residence nil rate band can add up to £175,000 where a home passes to children or grandchildren. Both have been frozen for several years. Check the latest figures on GOV.UK or speak to us before you plan.
Quick answers
Common questions
How much can I give away each year?
You can give £3,000 a year under the annual exemption, plus £250 each to as many people as you like, plus regular gifts from surplus income. Larger gifts fall under the seven year rule.
Do I pay tax when I give my child money?
Usually not at the time. Inheritance Tax only arises if you die within seven years and your gifts and estate are above the allowances. Capital Gains Tax can apply if you give an asset that has increased in value.
Should I tell my executors about my gifts?
Yes. Keep a list with dates, amounts and who received them, because your executors may have to report them.
Keep reading
Related guides
How does Inheritance Tax work in the UK?
Allowances, rates and how families reduce the bill.
Can you protect your home from care fees?
What works, what does not, and the risks of leaving it late.
What is a Property Protection Trust, and how does it work?
A trust in your will that protects your home for your family.
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