Gifting can be one of the most rewarding ways to support the people you care about.
Whether you put money towards a child’s first house, pay for your grandchild’s education, or support a loved one with their business venture, seeing how your wealth can help others on their own journey is a uniquely heart-warming experience.
Moreover, gifting can be a highly effective way of reducing the value of your estate for Inheritance Tax (IHT) purposes. However, without careful planning, your gifts could still be charged IHT, which could significantly reduce their value.
Read on to discover five ways to make the most of your gifting strategy.
1. Understand your nil-rate bands
Understanding your nil-rate bands is key to successful estate planning, as it allows you to see how much of your legacy is likely to be liable for IHT. Once you have this information, you can use strategies such as gifting to help improve the efficiency of your taxable estate.
In 2026/27, the nil-rate bands are:
- £325,000 for the standard nil-rate band – This is available to everyone.
- £175,000 for the residence nil-rate band – This is an additional allowance if you pass your main residence to your direct descendants. It tapers for individual estates worth over £2 million and is lost by the time it is worth £2.35 million.
- Spousal exemptions – Anything you pass on to your spouse or civil partner is typically IHT-free, and they can also inherit any unused nil-rate bands.
Together, these allowances enable you to individually pass on up to £500,000 to your beneficiaries tax-free. If you plan with your partner, you can collectively pass on up to £1 million.
2. Make use of your gifting allowances
Certain gifting allowances allow you to pass on assets automatically exempt from IHT.
The main gifting allowance is the “annual gifting exemption”. In 2026/27, this lets you give away up to £3,000 each tax year free from IHT. If you didn’t use the previous year’s allowance, you can carry it forward, and married couples and civil partners can combine allowances.
Other gifting allowances include:
- Wedding and civil partnership gifts of up to £5,000 – The total amount you can give depends on your relationship to the recipient.
- Small gifts up to £250 – You can give as many small gifts as you want, provided the recipient hasn’t already benefited from another exemption.
- Regular gifts from income – You can give regular gifts from your income, provided they don’t affect your standard of living.
Anything you gift outside of these allowances is typically treated as a Potentially Exempt Transfer (PET).
If you survive seven years after gifting a PET, it normally falls outside your estate. However, if you die within seven years, the PET may be liable for IHT, though possibly at a lower rate depending on how long you survived after giving the gift.
3. Decide who will give the gift
Giving gifts as a couple can be particularly effective, as you can combine your allowances and exemptions. However, it is important to consider which partner should make the gift, as this can affect its overall tax efficiency.
For example, if one partner is a higher earner, it may be more beneficial for them to make regular gifts from their income.
Similarly, if one partner is older or has health concerns, it may be better for the other to make larger gifts, as they are more likely to survive seven years, allowing those gifts to fall outside the estate for IHT purposes.
4. Consider the timing of your gift
The timing of your gift can also make a considerable difference to its overall efficiency.
Giving gifts early increases the chances they will fall outside of your estate for IHT purposes. It can also be beneficial to make long-term plans to regularly use your annual gifting allowance, as this may be more effective than making a one-off payment.
Moreover, because giving a gift can be considered an asset disposal, it may be liable for Capital Gains Tax (CGT). As such, it may be possible to improve tax efficiency by spreading gifts across tax years to make use of the CGT Annual Exempt Amount, though this requires careful planning.
5. Be aware of the risks involved with gifting
Gifting is not without risks, and it’s important to be aware of them. These include:
- Gift with reservation of benefit – If you continue to use an asset after giving it as a gift, it may still be treated as part of your estate for IHT purposes. For example, if you gift your home to a child but continue to live there without paying a full market rent, it may still be liable for IHT.
- CGT charges – Certain gifts, such as property or shares, can incur CGT even where no money changes hands if they have grown in value. So, it’s important to factor this into your strategy if you’re not gifting cash.
- Missing records – Keeping records of gifts is especially important for gifts made out of surplus income. Keeping clear records can help prove that the gifts were made regularly, came from excess income, and did not affect your normal standard of living.
- Loss of control over assets – Once an asset has been given away, it’s typically irrevocable, so it’s important to ensure that your own needs are secure before making significant gifts.
Being aware of these risks can help ensure your gifts are effective and efficient, and that the long-term security of you and your loved ones is well protected.
Get in touch
Our team of independent financial advisers in Lewes is here to help you create an efficient gifting strategy that supports your beneficiaries while ensuring your needs are looked after.
To find out more, please get in touch by emailing us at financial@barwells-wealth.co.uk or by phone on 01273 086 311.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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