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Inheritance Tax – Small Gifts

There is something about giving gifts and helping others that makes us feel good and if you can do that and save tax at the same time all the better!

Saving for a rainy day and retirement is important, but you probably would rather your family benefit from your hard earned savings rather than the tax man so why not consider giving regular small gifts to reduce the potential for a future Inheritance Tax Liability,

Inheritance Tax (IHT) is due at a rate of 40% on the value of your estate above £325,000. If you’re leaving your estate to direct descendants there’s an additional allowance of £150,000 (2021/22) to cover the sale of a family home. 

The threshold for inheritance tax has not changed for the past seven years while house prices in some areas have risen sharply in the same period. This means that more people than ever could be affected by IHT, potentially leaving a hefty tax bill for their loved ones.

Your estate includes all your property, possessions and assets and will also include any “gifts” in the seven years prior to your death, unless they are specifically exempt.

The following gifts are exempt from Inheritance Tax.

  • Normal gifts, like Christmas and birthday presents, made out of your income won’t attract IHT but you must be left with enough to maintain your standard of living after making the gift.

  • There is no IHT on gifts between spouses or civil partners, so you can give them as much as you like during your lifetime, as long as they live in the UK permanently.

  • You can give away up to £3,000 free of IHT each tax year. This is your “annual exemption”. Any unused amount can be carried forward for one year.

  • You can make as many small gifts as you like as long as they’re worth £250 or less per tax year per person. You can’t give one of these to anyone who received part of your £3,000 annual exemption.

  • Wedding or civil ceremony gifts are exempt from IHT up to £1,000 per person. This rises to £5,000 for your children, and £2,500 for your grandchildren or great-grandchildren.


Gifts which do not fall into any of these categories are free of IHT if you live for more than 7 years after giving the gift. Gifts given 3-7 years before your death are taxed on a sliding scale known as “taper relief”.

Years Between Gift and Death

Tax Rate

Less than 3










7 or more


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