Gifting money to children in the UK is not taxed when you make the gift, and in many cases it is never taxed at all. There is no gift tax in England and Wales. The only issue is inheritance tax, and it arises only if you die within seven years of giving away more than your yearly exemptions allow.
The rules reward two things: giving within the set exemptions, and living long enough for larger gifts to fall outside your estate. What follows is how much you can give tax-free each year, how the seven-year rule works, and the part most guides describe incorrectly, taper relief.
How much money can you gift your children tax-free?
In many cases you can gift your children several thousand pounds a year with no inheritance tax risk, using fixed exemptions: £3,000 a year in total (the annual exemption), £250 per person in small gifts, wedding gifts of up to £5,000 per child, and unlimited regular gifts from surplus income. Gifts above these rely on the seven-year rule.
These exemptions run alongside each other, and each is separate from the £325,000 nil-rate band that applies on death. The annual exemption covers your total giving for the year, not £3,000 per child, so a parent with two children splits one £3,000 allowance unless they also use other exemptions.
| Exemption | Limit (August 2026) | How it works |
|---|---|---|
| Annual exemption | £3,000 per giver, per year | Leaves your estate immediately. Unused allowance can be carried forward one tax year only, giving a maximum of £6,000. |
| Small gifts | £250 per recipient, per year | Any number of people can each receive £250, but not on top of the annual exemption to the same person. |
| Wedding or civil partnership gifts | £5,000 to a child; £2,500 to a grandchild; £1,000 to anyone else | Given for a specific marriage or civil partnership, before or shortly after the ceremony. |
| Normal expenditure out of income | No fixed limit | Regular gifts paid from surplus income (not capital) that do not lower your standard of living. Must be a genuine pattern. |
Source: gov.uk/inheritance-tax/gifts, as at August 2026, subject to change.
The normal expenditure out of income exemption is the most powerful and the most overlooked. A regular payment to a child from surplus income, say a monthly contribution to a mortgage or school fees, can be exempt in full and immediately, with no seven-year wait. The gifts must come from income rather than savings, form a settled pattern, and leave your standard of living intact. Your executors must demonstrate all three points to HMRC, so records matter.
What is the 7-year rule on gifts?
The seven-year rule means a larger gift to your children usually falls out of your estate for inheritance tax once you survive seven years from the date you made it. Gifts above your yearly exemptions are potentially exempt transfers: tax-free if you live seven more years, only potentially taxable if you die within that window.
A gift above the exemptions is not taxed when you make it. It sits in the background as a potentially exempt transfer, or PET. Live seven years and it is ignored. Die sooner and its value is added back into your estate, starting with the oldest gift. What counts and what does not:
- A cash transfer or gift of assets counts as a PET. Handing over money, shares or property with no strings attached starts the seven-year clock the day the gift is complete.
- A gift with strings attached does not leave your estate. Give away your home but keep living in it rent-free and it is a "gift with reservation of benefit", staying in your estate however long you live. See giving your home to your children.
- Gifts into most trusts follow different rules. These can be chargeable straight away rather than PETs, so they sit outside this guide. Our overview of using trusts in estate planning explains where they fit.
Order matters when someone dies within seven years. Gifts are set against the £325,000 nil-rate band oldest first, so the timing and sequence of large gifts, not just their size, decides whether any tax is due.
How does taper relief actually work? (the part most guides get wrong)
Taper relief reduces the inheritance tax on a gift if you die between three and seven years after making it. The point almost every guide misses: taper relief only applies to the portion of gifts above the £325,000 nil-rate band. On an ordinary gift that sits within the nil-rate band, there is no tax to taper, so surviving four years instead of two changes nothing.
The rate schedule for the tax on a gift, where death falls within seven years:
| Years between gift and death | Taper relief | Effective inheritance tax rate on the gift |
|---|---|---|
| 0 to 3 years | None | 40% |
| 3 to 4 years | 20% | 32% |
| 4 to 5 years | 40% | 24% |
| 5 to 6 years | 60% | 16% |
| 6 to 7 years | 80% | 8% |
| 7 years or more | Gift is exempt | 0% |
Source: gov.uk/inheritance-tax/gifts, as at August 2026, subject to change.
The widely repeated mistake is to apply these percentages to the whole gift. In practice, each person has a £325,000 nil-rate band, and gifts within seven years of death are covered by that band first. Taper relief only bites on the amount left once the band is used up. Two examples show why.
Example 1: a £50,000 gift, death four years later
A parent gives a child £50,000 (after the £3,000 annual exemption, £47,000 is the PET) and dies four years later. The £47,000 falls well within the unused £325,000 nil-rate band, so there is no tax on it. Taper relief gives no benefit, because there is nothing to reduce. Many people expect "24% tax" here. The real figure is nil, though the gift does use up part of the nil-rate band available to the rest of the estate.
Example 2: a £400,000 gift, death five years later
A parent gives a child £400,000 and dies five years and three months later. The first £325,000 is covered by the nil-rate band. The remaining £75,000 is taxable. At the full rate that would be £30,000 (£75,000 at 40%). Because death fell in the 5-to-6-year band, taper relief cuts the tax by 60%, to £12,000. Here taper relief is worth £18,000, because the gift was large enough to exceed the nil-rate band.
The practical lesson: taper relief helps large gifts, not ordinary ones. For most gifts to children under £325,000, what protects them is surviving seven years, not taper. Our taper relief guide works through more scenarios, and the inheritance tax overview sets the bands in context.
Do you or your children pay tax on the gift?
Your children pay no income tax on money you give them, and there is nothing to declare when the gift is made. If inheritance tax does become due because you die within seven years, it is normally paid by your estate. Only where the estate cannot cover it does liability pass to the recipient.
A cash gift is not income, so a child receiving £20,000 from a parent has no income tax on the sum itself and nothing to report to HMRC at the time. Tax can arise later on what the money earns: interest, dividends or gains belong to your child and follow the normal rules for their income.
Capital gains tax does not arise on a gift of cash, because cash is not a chargeable asset. It can arise the moment you give an asset that has risen in value, such as shares or a second property, since HMRC treats the gift as a disposal at market value (gov.uk, capital gains tax on gifts, as at August 2026, subject to change).
One trap applies to a parent's gift to their own minor child. If the money produces more than £100 of interest or income a year, that income is taxed as the parent's, not the child's (gov.uk, savings for children, as at August 2026, subject to change). This rule does not apply to grandparents, nor to Junior ISAs, where a child can hold up to £9,000 per tax year with income and gains free of tax (gov.uk, Junior ISAs, as at August 2026, subject to change).
Can gifting money reduce care home fees?
Giving money to your children to lower a future care bill can backfire. If a council decides you gave assets away mainly to avoid care charges, it can treat you as still owning them under the deliberate deprivation of assets rules, so the gift achieves nothing for that purpose.
Planning for the impact of care fees is a legitimate concern, but timing and motive are judged closely. A local authority carrying out a financial assessment can look back at gifts and, where it concludes the main reason was to reduce a care contribution, assess you as though you still held the money (gov.uk, Care and Support Statutory Guidance, as at August 2026, subject to change). Contrary to common belief, there is no fixed look-back period in England.
Gifts made years earlier, for ordinary reasons, when care was not on the horizon, are treated very differently from gifts made once a need for care is foreseeable. Individual circumstances matter here. Our guides on care home fees and deprivation of assets and care fees go further.
How do the 2025 to 2027 changes affect gifting?
Two recent changes make lifetime gifting more relevant, not less. The nil-rate bands are now frozen until April 2031, so more estates drift into inheritance tax, and from April 2027 most unused pension funds fall inside the estate. Both push more families to look at giving during their lifetime.
At Budget 2025 (26 November 2025) the government extended the freeze on the main allowances by a year, to 5 April 2031. The nil-rate band stays at £325,000, the residence nil-rate band at up to £175,000 (up to £500,000 for a single person leaving a home to direct descendants, or £1,000,000 for a couple), and the £2,000,000 threshold above which the residence band is withdrawn by £1 for every £2 (gov.uk, Budget 2025, as at August 2026, subject to change). Frozen bands plus rising asset values pull more estates over the threshold each year.
From 6 April 2027, most unused pension funds and death benefits are brought within the estate for inheritance tax (gov.uk, inheritance tax on unused pension funds and death benefits, as at August 2026, subject to change). Pensions had been a common way to pass wealth on tax-efficiently, so their inclusion makes exemptions and the seven-year rule more central. The standard rate remains 40%, reduced to 36% where at least 10% of the net estate is left to charity. See our Budget 2025 inheritance tax changes and pensions and inheritance tax from 2027.
How should you record gifts to your children?
Keep a simple, dated record of every gift above the small-gift level, noting the amount, the date and the exemption you claimed. Your executors must report gifts made in the seven years before death on form IHT403, and for regular gifts from income they must show the pattern came from surplus income without lowering your standard of living.
A practical way to keep gifts clean and defensible:
- Note the date, amount and recipient of each gift. A spreadsheet or notebook lets your executors work out which exemptions applied and whether the seven-year clock has run.
- Record which exemption you are using. Mark each gift as the £3,000 annual exemption, a £250 small gift, a wedding gift, or normal expenditure out of income, so nothing is double-counted.
- For regular gifts from income, note your income and outgoings. A yearly summary showing the gifts came from surplus income supports the normal expenditure exemption, which HMRC assesses on the pattern.
- Review after major changes. Marriage, a new grandchild, a house sale or the 2027 pension change can all shift the plan, so revisit gifting alongside your will and any lasting power of attorney. Registering an LPA with the Office of the Public Guardian costs £92 per document (gov.uk, as at August 2026, subject to change).
Frequently asked questions
How much money can I gift my child tax-free each year?
Up to £3,000 in total each tax year under the annual exemption, which leaves your estate immediately, rising to £6,000 if last year's allowance is unused. On top of that you can make small gifts of up to £250 to any number of different people, and regular gifts out of surplus income (gov.uk, as at August 2026, subject to change).
Does my child have to pay tax on a cash gift?
No income tax is due on the gift itself, and nothing to declare when they receive it. Tax can apply later to any interest, dividends or gains the money produces. For a parent's gift to a minor child, income over £100 a year is taxed as the parent's, though this does not affect grandparents or Junior ISAs (gov.uk, as at August 2026, subject to change).
What is the 7-year rule on gifts?
A gift above your yearly exemptions is free of inheritance tax if you live seven years after making it. Die within seven years and the gift is counted back into your estate. Taper relief can reduce the tax where death falls three to seven years after the gift, but only on amounts above the £325,000 nil-rate band (gov.uk, as at August 2026, subject to change).
Can I gift money to my children to avoid care home fees?
Generally no. If a council decides you gave money away mainly to reduce a care contribution, it can assess you as though you still held it under the deliberate deprivation of assets rules, and there is no fixed look-back period in England (gov.uk, as at August 2026, subject to change). Gifts made years earlier for ordinary reasons are viewed very differently.
Does giving my children money affect benefits?
Large cash gifts can affect means-tested benefits on both sides. If you claim Pension Credit or Universal Credit, giving money away can be treated as notional capital you still hold where the main purpose was to keep qualifying. A child who holds a large sum as savings may also see their own means-tested benefits reduced once their capital passes the relevant threshold (gov.uk, as at August 2026, subject to change).