Tax
Gifting Money to Children Tax-Free UK — The 7-Year Rule Explained
How to gift money to your children and grandchildren tax-free. The 7-year rule, annual exemptions, gifts from income, and how inheritance tax applies to lifetime gifts.
There is no gift tax in the UK. You can give anyone as much money as you want during your lifetime without an immediate tax charge. The only tax issue arises if you die within seven years of making a large gift — at which point inheritance tax (IHT) may apply.
The Rules at a Glance
| Rule |
Detail |
| Gift tax in the UK |
Does not exist — no tax when you make a gift |
| Inheritance tax on gifts |
Only applies if you die within 7 years of a gift exceeding exemptions |
| IHT rate |
40% (on the amount above the nil-rate band) |
| Nil-rate band |
£325,000 — gifts above this may be taxed if you die within 7 years |
| Annual exemption |
£3,000 per year, per person (can carry forward one year) |
| Small gifts exemption |
£250 per recipient per year (unlimited recipients) |
Tax-Free Gift Exemptions
Gifts That Are Always Tax-Free
| Exemption |
Amount |
Rules |
| Annual exemption |
£3,000/year |
Per person. Unused allowance carries forward one year only |
| Small gifts |
£250 per recipient |
Unlimited number of recipients. Cannot combine with annual exemption for same person |
| Wedding gift — parent |
£5,000 per child |
Given on or before the wedding |
| Wedding gift — grandparent |
£2,500 per grandchild |
Given on or before the wedding |
| Wedding gift — anyone else |
£1,000 |
Given on or before the wedding |
| Gifts to spouse/civil partner |
Unlimited |
Completely exempt — no limit |
| Gifts to charity |
Unlimited |
Completely exempt |
| Normal expenditure out of income |
Unlimited |
Must come from income, be regular, and not reduce your standard of living |
| Maintenance of dependants |
Unlimited |
Providing for a child under 18, elderly relative, or anyone financially dependent |
Annual Exemption — Worked Examples
| Year |
Annual exemption used? |
Gift made |
Tax-free amount |
| 2024/25 |
No (carried forward) |
— |
— |
| 2025/26 |
Yes — gave £6,000 to daughter |
£6,000 |
£6,000 (£3,000 current + £3,000 brought forward) |
| 2026/27 |
Yes — gave £3,000 to son |
£3,000 |
£3,000 (current year only — nothing to carry forward) |
Husband and wife each have their own £3,000 allowance — so a couple can give away £6,000 per year (or £12,000 if both carry forward).
The 7-Year Rule — How It Works
Any gift above your exemptions becomes a potentially exempt transfer (PET). The clock starts from the date of the gift.
| Time before death |
IHT rate on the gift |
| 0 – 3 years |
40% |
| 3 – 4 years |
32% (taper relief) |
| 4 – 5 years |
24% |
| 5 – 6 years |
16% |
| 6 – 7 years |
8% |
| 7+ years |
0% — completely outside your estate |
Important Points
- Taper relief reduces the tax rate on the gift, not the value
- Taper relief only applies to gifts that exceed the nil-rate band (£325,000)
- If total gifts in the 7 years before death are under £325,000, they use up NRB but no tax is due on the gifts themselves — the impact is that less NRB is available for the remaining estate
- Each gift has its own 7-year clock
Worked Example — 7-Year Rule
| Detail |
Amount |
| Gift made |
£400,000 to daughter in January 2020 |
| Nil-rate band |
£325,000 |
| Amount above NRB |
£75,000 |
| If donor dies in January 2023 (3 years) |
IHT at 40% on £75,000 = £30,000 |
| If donor dies in January 2025 (5 years) |
IHT at 24% on £75,000 = £18,000 |
| If donor dies in January 2027 (7+ years) |
£0 — gift fully outside estate |
Gifts from Normal Expenditure Out of Income
This is one of the most valuable exemptions but is often misunderstood. There is no limit on how much you can give away — as long as:
| Condition |
What it means |
| Comes from income |
Must be from your regular income (salary, pension, rental income, dividends) — not from savings or capital |
| Regular pattern |
Must form a pattern of regular giving (monthly or annually) |
| Does not reduce your standard of living |
After making the gifts, you can still afford your normal expenses |
Common Qualifying Examples
| Gift |
Why it qualifies |
| Monthly £500 to a child’s savings account |
Regular, from income, pattern established |
| Paying grandchildren’s school fees each term |
Regular, from pension income |
| Annual gift of £10,000 to each child at Christmas |
Annual pattern, from surplus income |
| Paying life insurance premiums for your children |
Regular, from income, for their benefit |
Record-Keeping
Keep a gift diary with:
| Detail to record |
Example |
| Date |
1 March 2026 |
| Recipient |
Daughter — Sarah |
| Amount |
£500 |
| Source of funds |
Monthly pension income |
| Exemption relied on |
Normal expenditure out of income |
| Pattern |
Monthly — 12th consecutive month |
Your executors will need this evidence when completing IHT forms. Without records, HMRC is likely to challenge claims.
Gifting Money for a House Deposit
| Question |
Answer |
| Is the gift taxable? |
No immediate tax. 7-year rule applies if above exemptions |
| Does my child pay tax on receiving it? |
No — recipients never pay tax on gifts in the UK |
| Will it affect the mortgage application? |
Yes — the lender needs a gifted deposit letter |
| What’s in the letter? |
Confirms money is a gift not a loan, donor has no interest in the property, and it does not need to be repaid |
| Can I loan the money instead? |
A loan is not a gift for IHT — it stays in your estate. Lenders also dislike loans as deposits |
| Anti-money laundering checks? |
The conveyancer will ask for the source of funds — have bank statements ready |
Gifted Deposit Letter Template
A gifted deposit letter should include:
| Element |
Detail |
| Full name of person gifting |
Your full legal name |
| Relationship to buyer |
Parent, grandparent, etc. |
| Amount of gift |
Exact figure |
| Property address |
Address being purchased |
| Declaration |
“This is a gift. I have no interest in the property. The money does not need to be repaid.” |
| Signature and date |
Signed and dated |
Most solicitors and mortgage brokers provide a template.
Trusts for Children
If you want to give money to children but keep some control, a trust may be appropriate:
| Trust type |
Best for |
Control |
Tax |
| Bare trust |
Children over 18 (or approaching 18) |
Low — child can access at 18 |
Gift falls under 7-year rule |
| Junior ISA |
Tax-free savings for under-18s |
Moderate — child accesses at 18 |
No tax on growth |
| Discretionary trust |
Keeping control over when/how money is distributed |
High — trustees decide |
Uses NRB; 20% charge above £325,000 |
| Child Trust Fund |
If opened before 2011 |
Low — child accesses at 18 |
No tax on growth |
Related: Trusts Explained | Junior ISA Guide
Gifts to Grandchildren
All the same rules apply. Additional points:
| Strategy |
Benefit |
| Use both grandparents’ annual exemptions |
£6,000 per year tax-free per couple |
| Pay into Junior ISA (max £9,000/year) |
Tax-free growth |
| Pay school fees from income |
Normal expenditure exemption — potentially unlimited |
| Wedding gift exemption |
£2,500 per grandparent |
| Specified Adult Childcare Credit |
If caring for grandchild while parent works — transfer NI credit |
Common Mistakes
| Mistake |
Consequence |
| Not keeping records of gifts |
Executors can’t prove exemptions — HMRC may charge IHT |
| Giving away your home but continuing to live in it |
Gift with reservation — stays in your estate |
| Making all gifts at once rather than spreading them |
Larger IHT exposure if you die within 7 years |
| Forgetting the spouse has their own exemptions |
Missing £3,000 per year from the other partner |
| Assuming gifts to children are automatically tax-free |
Only up to exemption limits — 7-year rule applies above |
| Not telling your executors about gifts |
Executors could make incorrect IHT returns |
Action Checklist
| Action |
Done? |
| Check whether your estate might be above IHT thresholds |
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| Start using £3,000 annual exemption every year (each spouse) |
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| Consider regular gifts from income (and document them) |
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| Start a gift diary with dates, amounts, recipients, and exemptions used |
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| Tell your executors about gifts you have made |
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| Review your will alongside your gifting strategy |
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| Take professional advice if your estate exceeds £500,000 (single) or £1 million (couple) |
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