July 15, 2026
Article
Gifting can be a useful way of passing on assets to your family and/or reducing your inheritance tax liability if this is applicable.
Currently, just 5% of estates are subject to inheritance tax in the UK. Every individual has a nil rate band available of £325,000 and a further £175,000 if the main residence is passing to children or grandchildren (direct descendants). Unused nil rate bands are transferable between spouses meaning that married couples have up to £1m of allowances between them. It should be noted that for estates over £2m, the residence nil rate band of £175,000 is restricted.
There is no limit to how much you can gift to individuals each tax year, however, if the gift is not covered by an exemption (see below), the value of the gift stays on your ‘7 year clock’ for inheritance tax purposes. If you survive more than 7 years after making the gift, the gift is exempt and outside of your estate.
If you die within 7 years of making the gift, the value of the gift forms part of your death estate and, if there is not adequate nil rate band to offset, any inheritance tax is payable by the person who received the gift, at a rate of up to 40% depending on how much taper relief is available, if any.
When making gifts to trusts, the nil rate band is used immediately if available. Any value exceeding the nil rate band is immediately chargeable to inheritance tax at the lifetime rate of 20% if paid by the trustees, or 25% if paid by the person making the gift.
As mentioned above, there are gifts that can be made and do not get added to the ‘7 year clock’. This includes the annual exemption of £3,000 per person, and you can also use the previous year’s annual exemption of £3,000 if this was not used. There are also other exemptions including small gifts of £250 per person per annum, certain gifts on marriage and gifts made from excess income (if regular and does not affect standard of living).
When gifting cash, there are no capital gains tax considerations. However, for other assets, a gift will trigger an event for capital gains tax purposes. If a gift is made - or an asset is sold for less than market value - the gift will be treated as a capital disposal at market value and capital gains tax will be payable if the gain exceeds £3,000 and any capital losses brought forward. The capital gains tax rates are 18% and 24%, depending on income levels in the year the gift was made.
For some business assets and gifts made to trusts, it is possible to defer the capital gain by effectively transferring the asset at base cost. This means the capital gains tax would be payable by the person or trust receiving the gift if they were to sell the asset at a later point.
If you would like any advice in respect of gifting or inheritance tax planning, please do not hesitate to get in touch.