Gifting money to family members, friends, or loved ones is a generous and often tax-efficient way to transfer wealth in the UK. Unlike many countries, the UK has no standalone gift tax but that does not mean gifted money is always free from tax consequences. Inheritance Tax (IHT), Capital Gains Tax (CGT), and in some circumstances Income Tax can all interact with gifts depending on the size of the gift, who receives it, and what happens after it is given. This comprehensive AccFirm guide explains all the tax rules on gifted money in the UK for 2025/26, including the seven-year rule, annual gift exemptions, and the most tax-efficient ways to pass wealth to the next generation.
Is There a Gift Tax in the UK?
No ,the UK does not have a specific gift tax. When you give someone money or an asset, neither you nor the recipient pays a “gift tax” at the moment the gift is made. This is fundamentally different from many other jurisdictions (notably the United States, where federal gift tax can apply to large lifetime gifts).
However, this does not mean gifts are always tax-free. The primary concern is Inheritance Tax HMRC has rules that can bring gifts made during your lifetime back into your estate for IHT calculation purposes if you die within a certain period of making them. Understanding these rules is the key to gifting effectively.
Do Recipients Pay Tax on Gifts?
In almost all circumstances, the recipient of a cash gift in the UK pays no tax on receiving it. The gift is not treated as income, and no tax return is required by the recipient simply because they received money as a gift.
Exceptions where the recipient may have tax obligations:
- Investment income from gifted money: If you invest a gift and earn dividends, interest, or capital gains, those returns are taxable in the normal way
- Children’s investment income funded by parents: If a parent gifts money to their child under 18, and that money generates more than £100 in interest per tax year, the parent — not the child — is taxed on the excess (anti-avoidance rule). This rule does not apply to gifts from grandparents, other relatives, or friends.
- Gifts in kind (non-cash assets): If you receive a non-cash asset (property, shares, artwork), there may be CGT implications for the giver at the time of the gift, based on the asset’s market value at the date of transfer
Inheritance Tax on Gifts: The Core Rules
The main tax risk associated with gifting in the UK is Inheritance Tax. IHT is charged at 40% on the value of your estate above the nil-rate band (£325,000 for 2025/26, or up to £500,000 with the residence nil-rate band for those leaving a home to direct descendants).
HMRC includes certain gifts made during your lifetime in the calculation of your estate for IHT purposes:
Potentially Exempt Transfers (PETs)
Most individual-to-individual gifts above the annual exemption are classified as Potentially Exempt Transfers (PETs). A PET is:
- Not subject to IHT at the time it is made
- Fully exempt from IHT if the donor survives for seven years after the gift date
- Subject to IHT (using up the nil-rate band first) if the donor dies within seven years
The Seven-Year Rule in Detail
The seven-year rule is the cornerstone of UK gift taxation. Understanding it is essential for effective estate planning:
| Years Between Gift and Death | IHT Rate Applicable (Taper Relief) |
| 0–3 years | 40% (full rate — no reduction) |
| 3–4 years | 32% (20% reduction) |
| 4–5 years | 24% (40% reduction) |
| 5–6 years | 16% (60% reduction) |
| 6–7 years | 8% (80% reduction) |
| Over 7 years | 0% — completely exempt |
Taper relief applies only to the tax due on the gift not to the value of the gift itself. It also only applies where IHT is actually due on the gift (i.e. the gift exceeds the donor’s available nil-rate band). Gifts below the nil-rate band remaining at death do not benefit from taper relief as no tax is due on them in any case.
IHT-Exempt Gift Allowances for 2025/26
These allowances allow you to make gifts that fall completely outside the IHT net, regardless of when you die:
Annual Exemption: £3,000
Each individual can give away up to £3,000 per tax year without the gift ever being treated as part of their estate. The allowance can be split between multiple recipients. Unused allowance can be carried forward to the next tax year only (maximum £6,000 in a single year if the previous year’s allowance was fully unused).
Small Gifts Exemption: £250
You can give up to £250 per person, per tax year to any number of people. This cannot be combined with the £3,000 annual exemption for the same person.
Wedding and Civil Partnership Gifts
- To a child: Up to £5,000 per parent tax-free
- To a grandchild or great-grandchild: Up to £2,500
- To any other person: Up to £1,000
- These exemptions apply only to gifts made on the occasion of a wedding or civil partnership — not afterwards
Normal Expenditure Out of Income
Gifts made from surplus income (not capital) can be fully exempt from IHT with no limit, provided:
- They are made as part of your normal, regular expenditure (monthly or annual patterns)
- They do not affect your standard of living
- They come from income (salary, pension, rental income, dividends) — not from savings or capital
- Thorough records are kept to demonstrate the pattern of giving
This exemption is particularly powerful for wealthier individuals with income exceeding their living expenses. Setting up regular standing orders to children or grandchildren can be a highly effective, unlimited IHT-free transfer mechanism.
Gifts Between Spouses and Civil Partners
Gifts between spouses or civil partners are completely exempt from IHT — there is no limit and no seven-year rule. This applies during lifetime and on death. Couples can effectively double their nil-rate band and pass up to £650,000 (or £1,000,000 with residence nil-rate bands) tax-free to the next generation.
Gifts to Charities
Gifts to registered UK charities are completely exempt from IHT. Additionally, if you leave 10% or more of your net estate to charity in your will, the IHT rate on the remainder of your estate drops from 40% to 36%.
Capital Gains Tax on Gifts of Non-Cash Assets
When you gift an asset other than cash such as shares, property, or valuable possessions HMRC treats the gift as a disposal at market value for Capital Gains Tax purposes. This means:
- If the asset has increased in value since you acquired it, a chargeable gain arises on the difference between the market value at the date of gift and your original acquisition cost
- This gain is subject to CGT at 10% or 18% (for most assets) or 18% or 24% (for residential property) in 2025/26
- The annual CGT exempt amount is £3,000 in 2025/26 — only gains exceeding this are chargeable
- Exception: Gifts between spouses and civil partners are treated as “no gain, no loss” no CGT arises
Practical Tax Planning Strategies for Gifting Money in the UK
- Start gifting early: The sooner you begin, the more likely you are to survive seven years and make gifts fully exempt from IHT
- Use your annual exemption every year: The £3,000 annual exemption is use-it-or-lose-it (with one year carry forward only) make sure you use it each April
- Gift out of surplus income: Establish regular, documented gifts from income for truly unlimited IHT exemption
- Document everything: Keep a gifts register recording the date, recipient, amount, and nature of every significant gift your executors will need this to complete the IHT400 form on your death
- Consider trusts for large gifts: Trusts can remove assets from your estate while retaining some control over how they are used seek specialist legal and tax advice
- Time large gifts carefully: If health is a concern, large gifts made now could start the seven-year clock although this should not be the primary motivation for gifting
Frequently Asked Questions: Taxes on Gifted Money UK
Do I need to tell HMRC about a cash gift I receive?
No you do not need to report a cash gift to HMRC at the time you receive it. However, if the gift generates taxable income (interest, dividends), those returns must be reported. The giver’s executor must report large gifts made in the seven years before death when completing IHT forms.
Can I give my child £100,000 tax-free?
Yes, but with conditions. The gift itself has no immediate tax consequence for you or your child. However, it is a Potentially Exempt Transfer if you die within seven years, the £100,000 will be counted as part of your estate for IHT, using up your nil-rate band. If you survive seven years, the gift is completely tax-free.
Is gifted money classed as income?
No. A straightforward cash gift is not treated as income by HMRC for the recipient. You do not pay Income Tax on money received as a gift.
How much can I give my grandchildren tax-free?
You can give grandchildren up to £3,000 per year from your annual exemption (split however you like), plus £250 each under the small gifts exemption, plus £2,500 per grandchild on the occasion of their wedding. Larger amounts can be gifted but are subject to the seven-year rule.