Tax on Gifts in the UK 2025-26
Most gifts in the UK are free of tax — but larger gifts can attract inheritance tax if you die within 7 years. Here is a complete guide to the rules for 2025-26.
Does the Recipient Pay Tax on a Gift?
In the UK, the recipient of a gift — whether money, property, or other assets — generally does not pay income tax or capital gains tax on it. Gifts are not classed as income for the recipient.
There are limited exceptions: if an employer gives an employee a gift worth more than £50, it is usually classed as a benefit in kind and taxed accordingly. And if a gift produces income (e.g. you give someone a rental property), the recipient pays income tax on future rental income in the normal way.
The main tax risk with gifts falls on the giver, not the receiver — specifically relating to inheritance tax (IHT) if the giver dies within 7 years.
Annual Gift Exemptions
Everyone can give away up to £3,000 per tax year completely free of inheritance tax. This is called the annual exemption. Unused allowance from the previous year can be carried forward — but only one year, so the maximum in any single year is £6,000.
Additional exemptions include:
| Exemption Type | Annual Limit | Conditions |
|---|---|---|
| Annual exemption | £3,000 per giver | Any recipient(s) |
| Small gifts | £250 per recipient | Cannot use with annual exemption for same person |
| Wedding gift — child | £5,000 | Must be made before the wedding |
| Wedding gift — grandchild | £2,500 | Must be made before the wedding |
| Wedding gift — anyone else | £1,000 | Must be made before the wedding |
| Regular gifts from income | No limit | Must come from surplus income, not capital |
| Gifts to charities | No limit | Registered UK charities only |
| Gifts to spouses/civil partners | No limit | UK-domiciled recipient |
Potentially Exempt Transfers (PETs)
Any gift above the annual exemption thresholds is called a potentially exempt transfer (PET). It is "potentially exempt" because if the giver survives for 7 years after making the gift, it becomes fully exempt from IHT.
If the giver dies within 7 years, the gift is brought back into the estate for IHT purposes. IHT is charged at 40% on the portion of the estate (including the gift) above the nil-rate band (£325,000 for 2025-26). However, taper relief reduces the tax payable on gifts made between 3 and 7 years before death:
| Years Between Gift and Death | IHT Rate on Gift |
|---|---|
| Less than 3 years | 40% |
| 3–4 years | 32% |
| 4–5 years | 24% |
| 5–6 years | 16% |
| 6–7 years | 8% |
| 7+ years | 0% (fully exempt) |
The 7-Year Rule in Practice
The 7-year rule means that gifting assets early can substantially reduce your estate's IHT liability. Consider an estate worth £700,000: the nil-rate band is £325,000, so without any gifts, IHT would be £150,000 ((£700,000 − £325,000) × 40%). If £200,000 was gifted more than 7 years before death, the taxable estate falls to £500,000 and IHT to £70,000 — a saving of £80,000.
Note that taper relief applies to the tax on the gift, not the full IHT rate. It only helps when the gift pushes the taxable estate above the nil-rate band. If the estate is below the nil-rate band regardless, there is no IHT to reduce.
Capital Gains Tax on Gifted Assets
While the recipient does not pay CGT when receiving a gift, the giver may owe CGT. When you gift an asset (shares, a second property, valuables), HMRC treats it as if you sold it at market value. If the market value exceeds your original cost, you have a capital gain and may owe CGT.
Gifts between spouses and civil partners are exempt from CGT — the recipient acquires the asset at the giver's original base cost.
Frequently Asked Questions
Do you pay tax on gifts received in the UK?
In most cases, no. The recipient of a gift does not pay income tax or capital gains tax on money or assets received as a gift. Tax implications mainly relate to inheritance tax on the giver's estate if they die within 7 years.
How much can I give as a gift tax-free each year?
Each person has an annual gift exemption of £3,000 per tax year. You can carry forward unused allowance from one previous year only, giving a maximum of £6,000 in a single year. Gifts up to £250 to any individual are also exempt.
What is the 7-year rule for gifts and inheritance tax?
If you make a gift and survive for 7 years after making it, the gift is completely free of inheritance tax. If you die within 7 years, the gift may be included in your estate. Taper relief reduces the IHT due on gifts made 3–7 years before death.
Can I give money to my children tax-free?
Yes, within the exemptions. You can give £3,000 per year free of IHT, plus a wedding gift of up to £5,000 to a child is also exempt. Larger gifts are potentially exempt transfers — fully IHT-free if you survive 7 years.