First, the reassuring bit

The UK has no gift tax. Nobody pays tax simply for receiving money, and most gifts never produce a tax bill for the giver either. The only mainstream concern is inheritance tax — and only if your estate is large enough for IHT in the first place (see inheritance tax basics) and you die within seven years of giving. Everything below is about managing that one risk, plus a couple of traps that catch people who give for the wrong reasons.

Gifts that leave your estate immediately

  • £3,000 a year — the annual exemption, covering one gift or many. Last year's unused exemption carries forward one year only, so a couple who skipped last year can hand over £12,000 clean.
  • £250 small gifts to any number of different people (not stackable with the £3,000 for the same person).
  • Wedding gifts: up to £5,000 to your child, £2,500 to a grandchild, £1,000 to anyone — made before the day, conditional on the marriage.
  • Spouse or civil partner: unlimited (if UK-domiciled), as are gifts to charities.

The underused one: regular gifts from income

Gifts that are normal expenditure out of income are immediately exempt with no upper limit — the most generous rule in the book and the least used, because the conditions are strict: the gifts must form a regular pattern (standing orders help), come from income rather than savings, and leave you able to maintain your usual standard of living without dipping into capital. Paying a grandchild's school fees or topping up a child's ISA monthly from a comfortable pension income fits perfectly. The catch is evidential — your executors must prove it on HMRC's form IHT403, which asks for income and expenditure year by year. Keep a simple annual record now; they can't reconstruct it later.

Everything else: the 7-year rule

Bigger one-off gifts — the house deposit, the "living inheritance" — are potentially exempt transfers: no tax when made, fully outside your estate if you survive seven years, back inside it if you don't. Two widely misunderstood details: gifts eat into your £325,000 nil-rate band before the rest of the estate does, and taper relief reduces the tax, not the gift — it only helps at all where the gifts themselves exceed the nil-rate band, which for most families means it never applies. If you're planning gifts at this scale, model the estate first and consider whether this is a question for an adviser or solicitor.

Two traps that undo the whole plan

Gifts with reservation: give something away but keep using it — the classic is signing the house to the children and living in it rent-free — and for IHT it never left your estate, seven years or not (and you may have created a capital gains problem for the children too). Deprivation of assets: giving money away to pass the care-fees means test doesn't work; councils can assess you as if you still had it, with no time limit. See care costs explained.

Helping with a house deposit

Gifted deposits are routine but paperworked: the lender will want a signed gifted-deposit letter confirming the money is a gift with no repayment expected and no stake in the property, and the conveyancer will run anti-money-laundering checks on where it came from — expect to show bank statements. Decide up front whether it's genuinely a gift or actually a loan; a loan changes the buyer's affordability assessment and must be declared. For the giver, it's simply a PET like any other, so date and document it.

The paper trail your executors will thank you for

Executors must report seven years of gifts to HMRC, reconstructed from bank statements if no record exists. Keep one page: date, amount, recipient, and which exemption you're counting it against — plus the income/expenditure summary if you use the gifts-from-income rule. Ten minutes a year, and it can save your family months.

Common questions

How much money can I give away tax-free each year?
Everyone can give £3,000 a year within the annual exemption (£6,000 if last year's was unused), plus unlimited £250 small gifts to different people, wedding gifts of up to £5,000 to a child, and unlimited regular gifts from surplus income if they meet the conditions. Larger gifts aren't taxed when made either — they're potentially exempt transfers that fall out of your estate if you live seven more years.
Does my child or grandchild pay tax on money I give them?
No — the UK has no gift tax on recipients, so the money itself arrives tax-free whatever the amount. Two side effects to know: interest or dividends the gift then earns are the recipient's taxable income (and if a parent's gift to a minor child earns over £100 a year, that income is taxed as the parent's), and if the recipient later sells a gifted asset, capital gains tax applies from its value at the date of the gift.
Can I give my money away before needing care to pass the means test?
Councils can treat gifts made to avoid care fees as 'deprivation of assets' and assess you as if you still had the money — and unlike the inheritance tax rules there is no seven-year limit; what matters is your motive and whether care needs were foreseeable when you gave. Gifts made when you were healthy, for clear family reasons, years before any care question, are rarely challenged. Giving away the house the year before a care assessment almost always is.

Sources and further reading

GOV.UK — inheritance tax on gifts · HMRC — form IHT403 · MoneyHelper — gifting money to family

About this guide: general education only — not regulated advice, tax advice or a personal recommendation, and FinancialAdvisor.co.uk is not an FCA-authorised firm. Estate planning at scale is precisely where paid, personal advice earns its fee. Related: inheritance tax basics and what to do with an inheritance.