How Much Can You Gift Your Children? Inheritance Tax Rules

You can give away up to £3,000 per tax year completely tax free under the annual gift allowance, carried forward from the previous tax year if unused. Larger gifts become potentially exempt transfers and fall outside your estate if you survive seven years after making them. 

Key takeaways

• The annual exemption lets you give £3,000 per tax year free from inheritance tax.
   
• Gifts made more than seven years before death fall outside your taxable estate. 
  
  
• Taper relief reduces IHT on gifts made three to seven years before death. 
  
  
• From 6 April 2027, most unused pension funds will enter your estate for inheritance tax under the Finance Act 2026.

Gifting rules can be confusing. The exemptions don't always interact the way you'd expect, and the pension changes arriving in 2027 add a new layer of urgency to decisions many people have been putting off.  

At Netwealth, our financial planners help clients navigate exactly these decisions, building gifting strategies around their pension drawdown, tax position, and long-term estate planning goals. This guide works through available allowances, explains the seven-year rule and taper relief without the jargon, and shows how lifetime gifting fits into a broader plan. 

How much can you give your children tax-free each year? 

Each individual can give away up to £3,000 in a tax year without those gifts counting towards their estate. You can split the £3,000 between one person or several, including a child or grandchild, another family member, or anyone else. These gifts fall outside the inheritance tax threshold immediately, regardless of when you die. 

If you don't use your full annual exemption, you can carry the unused portion forward once to the next year. The maximum in a single year is £6,000: the current year's allowance plus what you carried forward from the previous year. If you used £2,000 of your allowance in 2025/26, you can carry forward £1,000 and gift up to £4,000 in 2026/27. 

You can also give as many gifts as you like of up to £250 per person each tax year. This small gift exemption applies to anyone you choose, provided that person hasn't already received part of your £3,000 annual exemption. You can't use both allowances for the same person in the same tax year. 

What gifting allowances are available? 

Birthday or Christmas gifts from your regular income are exempt from inheritance tax as a separate allowance. Gifts to charities and political parties are fully exempt with no upper limit. Wedding and civil partnership gifts carry their own limits on top of your annual exemption. 

Source: GOV.UK: Rules on giving gifts 

If your child's getting married or entering a civil partnership, you can give up to the £5,000 wedding gift allowance on top of your annual exemption. A parent using both allowances in the same tax year can give £8,000 tax free. The wedding gift exemption can't be combined with the small gift exemption for the same person. 

What is the seven year rule for inheritance tax? 

Any gift above your annual exemption becomes a potentially exempt transfer: fully tax free if you survive seven years, subject to inheritance tax if you don't. Gifts made within three years of death attract the full 40% rate. Gifts made more than seven years before death fall completely outside the inheritance tax threshold. 

For gifts made between three and seven years before death, taper relief reduces the rate. Taper relief only applies when the total value of gifts in those seven years exceeds the £325,000 nil-rate band. It reduces the rate of tax on the gift, not the amount of the gift itself. 

Source: GOV.UK: The 7 year rule 

Why keeping records of gifts matters 

Keep accurate records of all gifts made, including the amount, recipient, and date. Your estate's executors need this information to calculate any inheritance tax due on gifts made in the seven years before your death. Detailed records also clarify the difference between a gift and a loan, helping to prevent disputes later on. 

For gifts of assets where market value might be disputed, written records of the agreed figure at the time of transfer are particularly important. This matters most for property, shares, or other investments that change in value over time. 

Regular gifts from income: a powerful and underused exemption 

Under the normal expenditure out of income exemption, you can make regular payments to your children from your surplus income without any inheritance tax charge. There's no upper limit, as long as the payments come from your regular  income rather than capital, they form a normal, habitual pattern of giving, and they don't reduce your ability to meet your own living costs. 

Common examples include paying your child's rent, contributing to a savings account, or making a regular transfer toward university costs or a property deposit. The money you give doesn't always have to be income that's already been taxed. If you gift money from a tax-free source (such as an ISA) no income tax will have applied to it at any point. Either way, the recipient pays no income tax on the gift, and there's no further income tax charge on the amount given. The recipient pays no tax on the gift and it attracts no further charge. 

One important rule: gifts from a parent to an unmarried minor child that generate more than £100 in total income per year are taxed as the parent's income, not the child's. This applies to all income the gift produces, including interest and dividends. Gifts from grandparents or other relatives aren't subject to this rule.  

How inheritance tax works with the nil-rate band 

Estates below the nil-rate band pay no inheritance tax. Those above it pay 40% on the excess. 

Key exemptions 

• Spouses and civil partners living permanently in the UK can pass unlimited assets to each other free from inheritance tax.
   
• Any unused nil-rate band transfers automatically to the surviving partner. 
  
  
• The residence nil-rate band applies when you pass your home to a child, grandchild, stepchild, adopted child, or foster child. 
  
  
• The residence nil-rate band reduces by £1 for every £2 above £2 million and disappears entirely at £2.35 million per person. 

Why this matters now 

Both thresholds are frozen until April 2031 under the Finance Act 2026, while asset values continue to rise. More estates are being pulled above the inheritance tax threshold each year, which makes lifetime gifting increasingly valuable as a planning tool. 

Note on taper relief: Taper relief on gifts only applies once the total value of potentially exempt transfers in the seven years before death exceeds the nil-rate band. Knowing your total estate value is essential before deciding when and how much to give away. 

Capital gains tax and gifts of assets 

Cash gifts don't attract capital gains tax. But when you give an asset such as property, shares, or any other investment, you may need to pay CGT on any gain since you acquired it. GOV.UK treats gifts as disposal at market value, so you pay CGT as though you sold it at full market value on the date of the gift, even if you received nothing in return. 

You can reduce exposure by using your CGT exempt amount 2026/27 of £3,000 and timing disposals across tax years. The interaction between IHT planning and CGT can create unintended costs, and speaking to a financial adviser before making gifts of assets is recommended. 

How the 2027 pension IHT changes affect your gifting strategy 

Until recently, most pension funds didn't form part of your taxable estate, making them one of the most powerful vehicles for passing wealth to the next generation. That's changing. From 6 April 2027, most unused pension funds and death benefits will enter the scope of inheritance tax under Finance Act 2026 ss.66 to 71, which received Royal Assent on 18 March 2026. Death-in-service benefits are explicitly excluded. 

GOV.UK confirmed this measure as part of the Autumn Budget 2024 reforms. If you've planned to leave your pension largely untouched as a tax-free inheritance, that strategy needs reassessment now. 

Drawing down more from your pension and giving money to your children as regular income gifts or PETs reduces your taxable estate and starts the seven-year clock earlier. The right approach depends on your income needs, income tax position, life expectancy, and total estate value. Netwealth's financial planning service can help you build a strategy that works across all of these. 

Trusts and Junior ISAs for longer-term gifting 

If you want to make larger gifts but aren't comfortable handing over funds unconditionally, a discretionary trust gives you control over how and when money is used. A trustee directs funds toward specific purposes such as education, a property deposit, or living costs. Trusts carry their own tax rules, so professional advice is essential before setting one up. 

Junior ISAs allow contributions that grow tax free, acting as a long-term gift for children who can manage the account at age 16 and access it fully at 18. Anyone can contribute up to the £9,000 annual JISA limit in 2026/27, and contributions don't count toward your own ISA allowance. Junior ISAs are also exempt from the parental settlement rule, making them a cleaner vehicle for larger gifts intended to grow over time. 

Beyond a Junior ISA, everyday tools like a prepaid debit card or jar-based budgeting help make money feel real for younger children. Splitting cash into saving, spending, and giving teaches financial responsibility and generosity from an early age. 

How to structure a gifting plan 

• Start with the annual gift allowance: if you've been letting your £3,000 allowance lapse, you're giving up one of the simplest ways to reduce your estate. Unused allowances carry forward, so two years' worth can go out at once if needed. 
  
  
• Layer in the surplus income exemption: if your income comfortably covers your living costs, the excess can go to family as regular monthly gifts with no seven-year clock attached. Milestone moments help too: wedding gifts, a contribution toward a first home, or covering university costs all sit within specific exemptions.
   
• Think carefully about your pension: the 2027 changes shift the balance between drawdown and lifetime gifting in ways that catch people off guard. Netwealth's investment and planning service can help you work through this before the changes take effect. 

Netwealth can help to plan your gifting strategy 

Gifting decisions interact with your tax position, your beneficiaries' circumstances, and the timing of other financial decisions. Getting that right makes a meaningful difference to how much wealth passes to the next generation.  

At Netwealth, our financial planners build personalised strategies that integrate lifetime giving, pension drawdown and inheritance tax planning. You can start mapping out your position with our digital planning tools, or speak to an adviser to work through it directly. 

Please note: the value of your investments can go down as well as up. Netwealth offers advice restricted to our services and does not provide independent advice across the market. This article doesn't constitute financial advice and you shouldn't interpret it as a personal recommendation. 

Frequently asked questions 

How much can I give my children without them paying inheritance tax? 

There's no inheritance tax for your children to pay on a gift during your lifetime; the tax falls on your estate, not the recipient. You can give up to £3,000 per year tax free under the annual gift allowance, carried forward if unused, and larger gifts become fully exempt if you survive seven years. 

What is the seven year rule for inheritance tax in the UK? 

The seven year rule means gifts above your annual exemption become potentially exempt transfers, falling outside the inheritance tax threshold if you survive seven years. If you die within seven years, the gift may attract IHT at a rate tapering from 40% down to 8% for gifts made between three and seven years before death, with the full 40% rate applying to gifts made within the final three years. 

Should I be worried about inheritance tax on my estate? 

The £325,000 nil-rate band applies per person, rising to £500,000 if you're passing a home to direct descendants, and married couples and civil partners can combine their thresholds for up to £1 million. The residence nil-rate band tapers away for estates above £2 million and disappears at £2.35 million per person, so larger estates need early advice. If your estate is likely to exceed the threshold, a structured plan for making gifts is worth having. 

Does my pension count as part of my estate for inheritance tax? 

Currently most pension funds sit outside your taxable estate, but from 6 April 2027 most unused pension funds and death benefits will enter the scope of inheritance tax under Finance Act 2026 ss.66 to 71. It's worth reviewing your arrangements now rather than waiting. 

What are potentially exempt transfers and how do they work? 

Potentially exempt transfers (PETs) are gifts above your annual exemption made outright to another individual. They become fully tax free if the giver survives seven years. During that period they remain subject to inheritance tax, with taper relief reducing the rate for gifts made between three and seven years before death. 

How can Netwealth help me plan regular gifts from income? 

Our financial planners work with you to assess your surplus income, model the impact of regular payments on your overall estate, and identify the most tax-efficient giving structure for your circumstances. Speak to our team to start building a regular gifting plan that fits around your income, your pension drawdown, and your longer-term goals. 

How does Netwealth approach the 2027 pension IHT changes for clients with gifting strategies? 

Our advisers help clients review their total estate value including pension assets, and model the effect of the April 2027 changes on their inheritance tax position. We build integrated strategies that combine pension drawdown, lifetime gifting, and estate planning to make the most of the allowances available. Explore our financial planning service or book a call to get started. 

Read more from Netwealth 

Who inherits your pension? 

Shielding children from IHT 

Benefits of pension consolidation