Gifting can help reduce Inheritance Tax (IHT) liability while supporting family members, whether it’s helping with a house deposit, education costs, or general financial security.

By making use of the available gifting allowances, you can pass on wealth tax-efficiently and ensure that more of your assets go to loved ones rather than the taxman. Here’s how to do it effectively before the tax year ends.

Annual Exemption

Each individual can give away up to £3,000 per tax year without it being counted towards their estate for IHT purposes.

If you didn’t use your exemption last year, you can carry forward one year’s allowance, allowing you to gift up to £6,000 tax-free in 2024/25. However, if you don’t use it, you lose it—so act before 5th April 2025.

Gifting from Surplus Income

If you have excess income that you don’t need for your living expenses, you can make regular gifts, and these are immediately exempt from IHT—provided they don’t affect your standard of living.

This is a great way to pass on wealth without eroding your IHT nil-rate band, but proper documentation is essential to prove the gifts were made from surplus income.

Find out more here.

Small Gifts Allowance

You can give up to £250 per person each tax year to as many people as you like, completely free of IHT. This is a great way to give tax-efficient gifts to children, grandchildren, or other relatives.

However, you can’t combine this allowance with the £3,000 annual exemption for the same recipient.

Wedding and Civil Partnership Gifts

Special exemptions apply when gifting money to help loved ones get married or enter a civil partnership:

  • £5,000 to a child.
  • £2,500 to a grandchild or great-grandchild.
  • £1,000 to any other relative or friend.

These gifts must be made before the wedding and ideally documented as part of your estate planning.

Consider Larger Gifts & the Seven-Year Rule

If you wish to give larger sums of money beyond the allowances mentioned above, you can do so, but they may be subject to Inheritance Tax unless you survive for at least seven years after making the gift.

Gifts above the nil-rate band (£325,000 per individual) are taxed on a tapering scale if made between three and seven years before death. This is often referred to as the “seven-year rule.”

If you are planning significant gifts, acting sooner rather than later will help you minimise potential IHT exposure.

Trusts

If you want to maintain control over how and when assets are used while still passing wealth to future generations, a trust can be a tax-efficient solution.

Trusts can help:

  • Protect assets from being spent too quickly.
  • Reduce potential Inheritance Tax liabilities.
  • Provide financial security for younger family members.

Since trusts can be complex, it’s best to seek professional advice to structure them correctly.

Find out more about Trusts in our guide here.

Gifting Before the Tax Year Ends

Gifting is a powerful estate planning tool, but timing is crucial to ensure you maximise exemptions and reduce your tax liability.

Before 5th April 2025, review your gifting strategy and ensure you take advantage of all available allowances. If you’re unsure how best to structure your gifts or need help with estate planning, consulting a financial adviser can provide clarity and peace of mind.

To discuss any of the issues raised in this article, please contact us. 

See the other topics in our Bitesize Tax Planning series:
Personal Reliefs
Planning for Retirement
Savings & Investments
Employee Benefits
All Matters Financial Podcast

Dive deeper into the topics mentioned on this insight and more with our All Matters Finance Podcast. Click the link below:

Download our Tax Planning Health Check Below:
This field is hidden when viewing the form
This is used only for conditional logic to redirect users to the correct content and is not displayed on the frontend.
This field is hidden when viewing the form
This is used to identify the amount of times a resource has been downloaded and from what page. This isn't visible on the frontend.
First Name(Required)
Last Name(Required)
Consent

Personal circumstances differ and not all of this information is applicable to every client and/or their business, this information is general in nature and should not be relied upon without seeking specific professional financial advice.

The Financial Conduct Authority (FCA) does not regulate tax advice, estate planning, trusts or will writing.

The content in this article is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice.

Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.

Thresholds, percentage rates and tax legislation may change in subsequent finance acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.

Pareto Financial Planning Limited is authorised and regulated by the Financial Conduct Authority (FCA).