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Inheritance tax planning and tax-free gifts

Find out how to give away money from your estate to reduce your inheritance tax bill, and what is a 'potentially exempt transfer'

In this article
Can I give money away to avoid inheritance tax? Who can I give money to tax-free? What is the 'annual exemption' for IHT? Are wedding gifts tax-free?
Donating to charities and political parties 'Potentially exempt transfers' for inheritance tax What gifts are liable to inheritance tax? Get a personalised answer to tax queries 

Can I give money away to avoid inheritance tax?

Many people don't like the idea of a big bite of inheritance tax being taken from what they leave behind for their family. 

But while you can't give your life savings away on your death bed to avoid tax, you can give gifts away throughout your lifetime that can reduce your bill

You're allowed to make some gifts without any tax being due after your death. These always include gifts to your spouse or civil partner or if you'd like to leave money to a charity after you die. 

Most of the time it also includes gifts to individuals made more than seven years before your death. 

However, if you make a gift to your children in your will to be given after you die it is likely there will be tax to pay (although there are exceptions). 

There will also be inheritance tax due if you put your money in a trust, or if you're passing on ownership or shares in a business (although you may be able to get business relief - which is explained further on gov.uk). 

This can be a tricky area. It is worth speaking to a professional after you have read this guide to talk about your specific circumstances. 

Who can I give money to tax-free?

Gifts to your spouse or civil partner and inheritance tax

These gifts are always tax-free. This doesn't include unmarried partners. Find out more in our guide to inheritance tax for married couples and civil partners.

Gifts to your family or other individuals

If you wish to leave money to other family members, such as your children, it's a good idea to plan how you want to do this. 

Some gifts it's best to give while you're still alive rather than leave in your will. Most gifts to people made more than seven years before your death are tax-free (they must be to people as opposed to trusts or businesses). 

These gifts are called 'potentially exempt transfers', because tax might be payable, depending on whether you survive seven years since the gift. Potentially exempt transfers are explained further below.

Another way to gift money to your children is through a mortgage deposit, but you should take independent advice before going ahead with this.  

Want to help your child onto the property ladder?

The experts at Which? Mortgage Advisers can advise on the best option for your circumstances.

Your home may be repossessed if you do not keep up your mortgage repayments.


What is the 'annual exemption' for IHT?

You can give up to £3,000 in total in each tax year that you're alive. You can carry any unused part forward one year only to the next year (so a total of £6,000). This gift is technically called your 'annual exemption'. 

You can also give any number of gifts up to £250 to a single recipient but not to anyone who has already benefited from your annual exemption. 

Gifts considered to be part of your 'normal expenditure' are also tax-free. This means you can give money from your salary or pension and it won't count towards your inheritance tax. 

This doesn't mean that you can give away all of your money as a tactic to avoid IHT. 

If any relatives are currently dependent on you for maintenance because of old age or infirmity, these gifts are also tax-free. This would also include an ex-husband, ex-wife, or ex-civil partner. 

It also includes leaving gifts for the maintenance, education or training of your children aged 18 or under (including step and adopted children). 

Are wedding gifts tax-free?

Tax is not due on gifts to people getting married, as long as it's made before the wedding, and the wedding does go ahead. This is:

  • up to £5,000 from each parent of the couple
  • £2,500 from each grandparent or more remote relative
  • £2,500 from bridegroom to bride (and vice versa) and between civil partners
  • £1,000 from anyone else

Donating to charities and political parties

You will not have to pay inheritance tax on gifts to:

  • UK-established charities
  • national museums
  • universities
  • the National Trust
  • political parties (broadly those represented in parliament with at least 2 MPs)
  • registered housing associations
  • community amateur sports clubs

'Potentially exempt transfers' for inheritance tax

Most gifts you make to other people during your lifetime (unless they fall into the list of tax-free gifts) are classified as ‘potentially exempt transfers’ or PETs for short.

If you survive for seven years after making the gift, no inheritance tax is due. However, if you die within this time, the gift will be added to your estate, and reassessed against other PETs you have given and your tax-free allowance. 

If the seven-year running total of PETs, chargeable gifts and your estate comes to less than the unused tax-free allowance, no tax will be due. 

However, if much of the tax-free allowance has been used up against PETs and taxable lifetime gifts, this can leave little or no allowance to be used against the rest of the estate. 

Everyone has a tax-free allowance of £325,000 on their estate before inheritance due is due. If you don't reach this threshold including the PET also, then you won't need to pay the tax. 

Find out more: inheritance tax thresholds and rates explained

If tax does become due on a PET, the person who received the PET will be asked to pay the tax. However, the tax may be reduced because of 'taper relief'. 

The chart below explains how taper relief can reduce tax due on PETs. 

While taper relief may reduce tax on PETs if you die within seven years of making them, it won't reduce the tax due on your estate as a whole. 

What gifts are liable to inheritance tax?

You can't gift someone something that you will still maintain a benefit from in your lifetime. 

So, for example, you can't gift someone your home but continue to live in it rent-free until your death. 

Get a personalised answer to tax queries 

The Which? Money Helpline offers independent one-to-one guidance on a range of topics, including inheritance tax. 

If you're not a Which? member, and you'd like to get unlimited access to our Money Helpline experts, you can try Which? Money for two months for £1.