What are the Inheritance Tax (IHT) implications of giving away assets? What exemptions and reliefs are there for gifts?
Subscribers see Client Briefing: Making gifts & IHT.
This is a freeview 'At a glance' guide to the IHT implications of making gifts.
At a glance
There are various lifetime and death exemptions and reliefs applicable to Inheritance Tax including:
- Annual exemption.
- Spouse/civil partner exemption.
- Normal expenditure out of income exemption.
- Business and Agricultural Property Reliefs (BPR and APR).
- Charitable donation exemptions.
Overview and examples
Spouses and civil partners
Lifetime and death transfers between UK resident spouses/civil partners are exempt from IHT.
See Transferable Nil Rate Band for what happens to any unused nil rate band of the first spouse/civil partner to die.
Long-term non-residents
- From 6 April 2013, the lifetime and death limit on the amount that could be transferred IHT-free to a non-domiciled spouse under the spousal exemption was increased to the prevailing Nil Rate Band (NRB), currently £325,000.
- A non-UK domiciled spouse could elect to be UK domiciled for IHT purposes to prevent this restriction from applying.
Finance Act 2025 removed the concept of domicile status from the UK tax system, implementing a new residence-based regime from 6 April 2025.
- Under the new regime, an individual's non-UK assets are within the scope of IHT if the individual has been resident in the UK for 10 out of the last 20 years preceding death or a chargeable event.
- This is known as being a long-term UK resident.
- A lifetime and death limit continues to apply to the amount that may be transferred IHT-free under the spousal exemption to a spouse who is not a long-term UK resident.
- Where, immediately before a transfer, the transferor is a long-term UK resident and the transferee spouse or civil partner is not a long-term UK resident, the IHT exemption is restricted to the prevailing NRB (currently £325,000 and frozen at that level until 5 April 2031).
- An election can be made to allow a spouse who is not a long-term UK resident to be treated as though they are a long-term resident. This prevents the restriction from applying, but will bring their non-UK assets within the scope of IHT.
- This election lasts until the spouse has had a consecutive period of ten years outside the UK.
See Non-Domicile: Rules from 6 April 2026
Exempt gifts
Certain gifts are exempt from IHT, they include lifetime gifts and bequests i.e. gifts on death made to certain organisations including:
- Qualifying charities.
- Community Amateur Sports Clubs (CASCs).
- Gifts for national purposes to qualifying bodies e.g. the National Gallery, National Trust etc. See Heritage Assets: IHT and CGT relief
- Gifts to political parties are subject to the strict condition of s.24 IHTA 1984. See the Court of Appeal decision in Arron Banks v HMRC [2021] EWCA Civ 1439.
Lifetime exemptions for gifts of non-business assets
It is possible to make gifts during a lifetime that are exempt from IHT, they do not use the nil rate band and they are not Potentially Exempt Transfers (PETs) (see below). Some of these are annual exemptions meaning that, for example, a small gift of £250 can be made to the same person every year and it will be exempt.
|
Annual exemption, per year, if all or part has not been used in the previous year, one year may be carried forward |
£3,000 |
|
Small gift exemption, per person |
£250 |
|
Gifts on marriage/civil partnership: |
|
|
By Parent |
£5,000 |
|
By Grandparent |
£2,500 |
|
By Others, Aunt, family friend etc |
£1,000 |
|
Exemption for regular gifts out of income |
No limit |
Lifetime exemptions also include regular gifts out of income.
Potentially Exempt Transfers (PETs)
Other gifts are taxable if the transferor dies within seven years of making the gift. Taper Relief can reduce the value of the death IHT charge (where the failed PET is not covered by a nil rate band):
|
Reduced charge on other gifts made within seven years of death |
|
|
Years before death |
% of death charge |
|
0 -3 |
100 |
|
3-4 |
80 |
|
4-5 |
60 |
|
5-6 |
40 |
|
6-7 |
20 |
- Where IHT is due because a PET has failed, the tax is due by the donee unless the deceased's will says otherwise.
- The nil rate band is allocated to failed PETs first and is only then available to the rest of the estate if the value of failed PETs is below the limit.
- When reviewing the availability of the nil rate band for use against failed PETs on death, any chargeable lifetime transfers, e.g. transfers into trust, made in the seven years prior to the PET and not the death, must be taken into account. This is known as the 14-year rule.
See IHT: Estate planning checklist
Reliefs from IHT
Business Property Relief (BPR)
Business Property Relief provides relief from Inheritance Tax on the transfer of relevant business assets at a rate of 50% or 100%. Relevant property must usually be held for at least two years in order to qualify for relief.
See IHT Business Property Relief
Agricultural Property Relief (APR)
Agricultural Property Relief is given on the agricultural value of agricultural property which has been:
- Occupied by the transferor for the purposes of agriculture for two years ending with the date of the transfer.
- Owned by the transferor for seven years ending with the date of transfer and occupied throughout by them or another for the purposes of agriculture.
APR is given at two rates: 100% and 50%.
See IHT Agricultural Property Relief
What's new with APR and BPR?
In December 2025, the government announced further reforms to the new IHT measure being introduced from 6 April 2026.
- The 100% allowance for assets qualifying for APR or BPR will be increased from £1m to £2.5m.
- Qualifying assets exceeding the £2.5m limit will obtain IHT relief at 50%.
- Trust relief allowances will also increase from £1m to £2.5m.
- No further changes for AIM shares, other than those outlined in Autumn Budget 2024
Additionally, it was announced in the Autumn Budget 2025 that any unused APR or BPR allowance will be transferable between spouses and civil partners.
Charitable donations
If a donation of at least 10% of the net value of the estate is made to charity the IHT rate decreases to 36%. See IHT discount on charitable donations
The deceased's household and personal goods may be donated to charity by beneficiaries without a requirement to make a Deed of variation. The value of the donation is exempted as a charitable donation and may be included in the total in order to calculate a discount.
Donations to charity are only exempt if the charity is subject to the jurisdiction of UK courts.
Responsibility for IHT
- Tax is payable within six months of the end of the month of death, e.g. a death in December 2023 will mean the IHT must be paid by 30 June 2024.
- Under s.200(1) IHTA the deceased's personal representatives or executors are responsible for settling the IHT of the estate.
- This was confirmed in the case of Glyne T Harris as personal representative of Helena Norma McDonald (deceased) v HMRC [2018] TC06448 where the personal representative was held personally liable despite having distributed all assets of the estate to a beneficiary under the will.
- Where there have been PETs within seven years of death and tax is due on death it is the recipients of the PETs who are liable for the tax.
Capital Gains Tax (CGT)
Capital Gains Tax should not be overlooked when gifts of assets are being made. A gift is a CGT disposal at market value. For how to compute CGT on a gift and details of available reliefs see How to calculate a capital gain or loss and CGT reliefs: disposal of a business or its assets.