| Gift tax in the UK | none of its own; gifts fall into inheritance tax |
| Annual exemption | £3,000 per tax year, unused balance carried forward one year |
| Small gifts | up to £250 per person per tax year |
| Weddings | £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else |
| Seven-year rule | tax-free if the giver survives seven years |
| Gift into a trust | 20% at once on the part above the nil-rate band |
| Updated | November 2026 |
The seven-year rule: tax-free, with a delay
Give someone money, property or shares and in the UK it is first a potentially exempt transfer. Live another seven years and it is finally tax-free. Die sooner and the gift is brought back into the inheritance tax calculation.
Gifts brought back first use up the £325,000 nil-rate band. Anything above it is taxed, at the full 40% for gifts in the last three years before death. For older gifts the rate falls in steps. This taper relief only helps, though, if the gifts of the last seven years together exceed the nil-rate band; below it there is nothing to reduce.
The estate normally pays the tax on gifts. If the gifts of the last seven years together exceed £325,000, the recipient pays the tax on their gift themselves. That can catch recipients who spent the money long ago.
How tax on gifts falls
Rate on the part of a gift above the nil-rate band, depending on how long before death it was made.
| Time between gift and death | Rate |
|---|---|
| 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 | 0% |
GOV.UK, How Inheritance Tax works: taper relief
What is tax-free at once
Some gifts never count towards the estate, whenever you die. They can be combined, except small gifts with other exemptions for the same person.
- Annual exemption: £3,000 per tax year (6 April to 5 April), to one or more people. Unused amounts can be carried forward for exactly one year.
- Small gifts: any number of gifts up to £250 per person per tax year, as long as no other exemption is used for that person.
- Wedding or civil partnership: up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, £1,000 to anyone else.
- Regular payments out of income: no upper limit, as long as you pay them from your regular income and can keep up your usual standard of living afterwards. Rent for a child at university typically qualifies.
- Spouses and civil partners: unlimited, capped at £325,000 if only the giver is a long-term UK resident.
- Charities and political parties: unlimited.
Gifts with reservation: given away, but not gone
The classic: parents transfer the house to the children and keep living in it. For HMRC that is a gift with reservation, a gift the giver keeps benefiting from. It counts in full towards the estate on death, and the seven-year rule does not help, however long ago the transfer was.
If you want to stay in the house after giving it away, you must pay the new owners a market rent and your share of the running costs. The exception: you give away only part of the house and the recipients live there with you. The same principle applies to the painting that stays on your living room wall after you have given it away.
Gifts into a trust
A gift into most trusts is not a potentially exempt transfer but immediately chargeable: a chargeable lifetime transfer. Anything above the nil-rate band costs 20% at once if the trustees pay. If the giver dies within seven years, it is recalculated at 40%, with credit for the tax already paid.
If the giver keeps a benefit in the trust property, it hits twice: 20% on the way in, and the property still counts towards the estate. How trusts are then taxed every ten years is in our piece on trusts. For business property and farmland separate limits have applied since April 2026; see business and agricultural property relief.
Capital gains tax: the second tax on the same gift
If you give away shares, a let flat or other valuables, for UK capital gains tax you have disposed of them. Growth in value since purchase can therefore be taxable when you give, even though no money changes hands. Gifts to spouses, civil partners and charities are usually free of it. The rates are in UK capital gains tax.
Your home country: the other side
Many European countries tax gifts in their own right, often immediately rather than only after a death, and often by where the giver or the recipient lives. Some add up gifts from the same person over several years; some require a notification even where no tax is due; some have abolished gift tax altogether. A few keep their nationals in the net for some years after they have moved abroad.
Estate tax conventions with the UK rarely help here: only a handful exist, and some cover estates but not lifetime gifts. Relief, where there is any, usually comes as a credit, which is awkward when the UK tax may only arise years later. So before a larger gift, check your home country's rules with an adviser there; the UK side is what we cover.
Frequently asked questions
How much can I give away tax-free in England?
Immediately tax-free are £3,000 per tax year, small gifts up to £250 per person, wedding gifts up to £5,000 to a child and regular payments out of income. Anything else to individuals becomes tax-free if you live another seven years.
My parents in England want to give me money. Will I pay tax where I live?
That depends on your country's rules. In the UK the gift is tax-free at first and only matters if the giver dies within seven years. Your country may tax it straight away; check before the money moves.
Do I have to report gifts in the UK?
Gifts to individuals are not reported during your lifetime. But keep a record of what you gave to whom, when and at what value. The executor needs that list for the last seven years. Gifts into trusts above the nil-rate band are chargeable at once.
Sources: GOV.UK: How Inheritance Tax works, rules on giving gifts; GOV.UK: Trusts and Inheritance Tax; GOV.UK: Capital Gains Tax, gifts; HMRC Manual: IHTM47030 Spouse exemption, not a long-term UK resident; HMRC Manual: IHTM47071 Post 1975 Double Taxation Conventions
