Most people will have seen or heard the phrase and it’s true that retirement is to be enjoyed, but younger generations are facing some real challenges, especially when it comes to things like getting on the housing ladder. That’s why Inheritance Tax: Gifting to Children and Grandchildren is such an important subject, whether it’s for purchasing homes, education costs or special occasions.

How Much Can I Gift Without Paying Inheritance Tax (IHT)?

Up to £3,000 in assets or cash per tax year, tax-free. Everyone has their own £3,000 limit called the annual allowance. If you did not make any gifts in the previous tax year, this rises to £6,000. You can also make as many gifts of up to £250 per person, if you haven’t used up your annual allowance on the same person. Additionally, you can gift up to £5,000 for weddings (£2,500 for a grandchild) without using up your annual allowance.

Why Does The Annual Allowance Matter?

If your estate is valued at over £325,000, your estate may be liable for IHT at 40% on the value over £325,000. The value you can pass on IHT-free is called the nil rate band (NRB). If your spouse or civil partner did not use their own NRB before they died, it will be transferrable to your estate. If you are leaving your residence to direct descendants, your estate may benefit from the additional residence NRB of up to £175,000, providing a potential (subject to further rules) £1m before any IHT becomes payable.

Assets left to a surviving spouse or civil partner are not subject to IHT.

Your annual allowance matters because any gifts over the £3,000 threshold and within seven years of your death will be added to the value of your estate for IHT purposes. If your estate is worth £320,000, and you gift £10,000 in 2025, and pass away in 2026, £10,000 will be added to your estate, less your annual allowance for that tax year:

£320,000
+ £10,000
= £330,000
– £3,000
= £327,000

Ignoring any transferable NRBs, exemptions and allowances carried over from previous tax years, IHT at 40% would therefore be payable on the value over £325,000 at 40%: £2,000 x 40% = £800.

The percentage of IHT payable on lifetime gifts that exceed your NRB depends on how many years have passed between making the gift and your death. Please see the full article on the Wilson Browne website for further details www.wilsonbrowne.co.uk/news/IHT)

If you survive seven years after the gift, the value won’t be added to your estate. One important caveat to note is where that gift is made ‘with reservation of benefit’. If you gift property but continue to enjoy use of it, the value of that gift will remain within your estate for IHT purposes.

The best option for gifting will depend on your circumstances, so it’s crucial to obtain professional advice.

If you require more information or would like to discuss your options contact the team on 0800 088 6004.