Annual IHT Gift Exemptions 2026
| Exemption | Amount | Notes |
|---|---|---|
| Annual exemption | £3,000 per year | Carry forward one unused year — max £6,000 |
| Small gifts | £250 per person | Unlimited recipients — cannot combine with annual exemption for same person |
| Wedding gift (to child) | £5,000 | Must be in contemplation of marriage |
| Wedding gift (to grandchild) | £2,500 | Must be in contemplation of marriage |
| Wedding gift (others) | £1,000 | Must be in contemplation of marriage |
| Gifts to spouse/civil partner | Unlimited | UK-domiciled spouses only |
| Gifts to charity | Unlimited | Also reduces estate IHT rate to 36% if 10%+ goes to charity |
| Normal expenditure out of income | Unlimited | Must be regular, from income not capital, and not affect standard of living |
The 7-Year Rule and Taper Relief
Any gift outside a specific exemption is a Potentially Exempt Transfer (PET). Survive 7 years after making it and it falls outside the estate entirely. Die within 7 years and taper relief applies:
| Years between gift and death | IHT rate on gift |
|---|---|
| 0–3 years | 40% (full rate) |
| 3–4 years | 32% |
| 4–5 years | 24% |
| 5–6 years | 16% |
| 6–7 years | 8% |
| 7+ years | 0% |
⚠️ Taper relief reduces the tax — not the value of the gift. The gift is assessed against the nil-rate band first. Taper only reduces tax once the nil-rate band is fully used.
Gifts With Reservation
A gift only works for IHT if you genuinely give it away. Giving your home to a child but continuing to live there rent-free is a “gift with reservation” — HMRC treats it as still in your estate at death. To avoid this, pay full market rent or do not make the gift.
Keep Records Now
HMRC requires executors to report all gifts made in the 7 years before death. Without records, executors must reconstruct the gift history — which can be difficult and lead to disputes or penalties.
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