7th January 2026

Gifting Allowances – What Are They?

As we step into the New Year, many families take the opportunity to support loved ones through gifts—whether to help with education costs, property purchases, or simply as a gesture of generosity at this time of year. With a little forward planning, gifting can also form part of an effective inheritance tax (IHT) strategy.

Gifts and Inheritance Tax

Certain gifts are automatically free of inheritance tax.

Gifts between spouses and civil partners are exempt from IHT, provided that:

  • both spouses or civil partners are permanently resident in the UK; and

  • they are legally married or in a registered civil partnership.

Gifts to UK charities and registered political parties are also exempt from inheritance tax.

Making Use of Your Allowances

Each tax year, every individual has a number of allowances that can be used to make gifts without increasing the value of their estate for IHT purposes. The amount you can give depends on which allowance is used.

Annual Exemption

Every individual has an annual exemption of £3,000. This allows you to give away up to £3,000 each tax year without the value of those gifts being added back into your estate.

If the full £3,000 exemption is not used in a tax year, the unused portion can be carried forward for one tax year only.

For example, if some or all of your £3,000 annual exemption for the 2024–2025 tax year is unused, it can be carried forward to the 2025–2026 tax year, giving you a total allowance of £6,000 in that tax year.

For married couples or those in a civil partnership, you can combine your annual allowance so you have a joint allowance of up to £6,000 per tax year. If the previous tax years’ allowances were unused, you can carry this forward to the next tax year giving you a total maximum joint allowance of up to £12,000 for that tax year.

Small Gift Allowance

You may make small gifts of up to £250 per person to as many individuals as you wish in each tax year.

However, this allowance cannot be used in conjunction with another allowance for the same person. For example, if you use part of your annual exemption to make a gift to an individual, you cannot also make a £250 small gift to that same person in the same tax year.

Gifts for Weddings or Civil Partnerships

You may make tax-free gifts in contemplation of a marriage or civil partnership, up to the following limits:

  • £5,000 to a child

  • £2,500 to a grandchild or great-grandchild

  • £1,000 to any other person

Wedding or civil partnership gifts can be combined with other allowances, such as the annual exemption, but not with the small gift allowance.

Gifts Out of Surplus Income

This exemption—sometimes referred to as “normal expenditure out of income”—can be particularly useful.

Under this allowance, you may make regular gifts of any amount provided that:

  1. the gifts are made from your income, not capital;

  2. the gifts form part of your normal pattern of expenditure; and

  3. you are able to maintain your usual standard of living after making the gifts.

There is no upper limit on the value of gifts made under this exemption. Gifts out of surplus income can be used alongside other allowances, except for the small gift allowance.

Potentially Exempt Transfers (PETs)

Gifts that do not fall within one of the specific exemptions or allowances are usually treated as Potentially Exempt Transfers (PETs).

A PET will be free of IHT if the donor survives for seven years from the date of the gift. If the donor dies within seven years, the value of the cumulative gifts which exceed the annual exemption in the seven years preceding death will be added to the value of your Estate when calculating inheritance tax. If you are within your available IHT free bands then there may be no IHT liability.  If the value of your Estate plus chargeable gifts exceeds your IHT free bands then there will be IHT liability to pay on your death.

If the value of the cumulative gifts made in the seven years preceding your death exceed your Nil Rate Band (currently £325,000) then there will be IHT to pay on the gift itself. This is usually by the recipient unless your Will specifies the Estate pays the tax. Depending on when the gift was made there may be taper relief to reduce the amount of tax payable.

PETs can play an important role in estate planning but should be considered carefully, particularly where larger sums are involved.

Practical Gifting Checklist

Before making a gift, it may be helpful to consider the following:

✔ Have you used your £3,000 annual exemption for the current tax year?

✔ Do you have any unused exemption from the previous tax year that could be carried forward?

✔ Would the small gift allowance be appropriate, or have other allowances already been used for that recipient?

✔ Are any gifts being made from surplus income, and can this be clearly demonstrated?

✔ Are larger gifts intended to be PETs, and are you comfortable with the seven-year period?

✔ Have you kept a record of the gift, including the date, amount, recipient, and allowance relied upon?

If you would like advice on gifting, or if it has been some time since you reviewed your Will or estate planning arrangements, professional advice can provide valuable reassurance as we move into the New Year.

Please contact Samiha Begum on 01892 502 345 or sbegum@bussmurton.co.uk, for more information.

Samiha Begum

Samiha Begum
Solicitor