Thinking of giving your kids a bit of help with their deposit? Or slipping your grandkids some cash for uni? Just make sure HMRC doesn’t turn it into an accidental tax trap.
Fortunately, there are several perfectly legal ways to give financial support without creating a future inheritance tax headache. And in 2025, with frozen allowances and rising property prices, smart gifting isn’t just generous, it’s strategic.
1. Use Your £3,000 Annual Exemption
Each tax year, you can gift up to £3,000 in total to one person or split it across multiple people, and it won’t count towards your estate for inheritance tax (IHT) purposes. This allowance has been confirmed for the 2025/26 tax year, and if you didn’t use it last year, you can carry forward one year’s unused allowance to potentially gift up to £6,000.
That means couples could potentially give away £12,000 tax-free this year if they both use current and previous allowances. Just make sure to keep a simple record.
Best for: House deposits, uni support, regular top-ups.
2. Give Small Gifts of Up to £250 Per Person
This one flies under the radar. You can give as many people as you like up to £250 each per tax year, as long as they haven’t already received part of your £3,000 annual exemption.
Great for birthdays, Christmas, or just small financial nudges to help family and friends.
Caveat: It can’t be combined with the £3,000 exemption for the same person in the same tax year, so track who’s had what.
Best for: Regular little gifts to grandchildren, nieces, nephews.
3. Wedding and Civil Partnership Gifts
If someone in the family is getting married or entering a civil partnership, you can make a larger one-off gift:
- Up to £5,000 for a child
- Up to £2,500 for a grandchild or great-grandchild
- £1,000 for anyone else
This is in addition to your other exemptions, so it can be layered strategically. Just make the gift before the wedding.
Best for: Milestone celebrations, setting couples up financially.
4. Gifts from Surplus Income
One of the most underused allowances: if you have income you don’t need to live on, you can gift it regularly and it doesn’t count towards your estate for IHT.
Key criteria:
- The gift must come from income, not capital.
- It must form part of a regular pattern of giving.
- It must not reduce your normal standard of living.
- Keep records: bank statements, income sources, and a written declaration help
This can be incredibly powerful over time, especially for parents or grandparents with healthy pensions or investment income.
Best for: Ongoing support for adult children, paying school fees, or junior ISA contributions.
5. Understand the Seven-Year Rule
Not technically tax-free, but vital to understand: if you give away more than your annual exemptions, those gifts become “potentially exempt transfers” (PETs). If you survive seven years after making the gift, they fall outside your estate for IHT.
If you die within seven years, the value of the gift may still be subject to IHT. Taper relief can reduce the tax due on amounts that exceed the nil-rate band, not the value of the gift itself, if you survive more than three years.
Tip: Always document the date, recipient, and value of larger gifts.
Best for: Gifting property, lump sums, or investment holdings.
Plan It Right, Gift With Confidence
Done correctly, gifting can reduce your tax exposure, support your family’s future, and give you the joy of seeing your money make a difference now.
If you’re thinking of making financial gifts but aren’t sure what’s within the rules (or how to structure things to stay tax-efficient), we’re here to help.
☎️ Call Cedar House on 020 8366 4400
✉️ Or email enquiries@cedarhfs.co.uk to book a quick chat.