How Much Money Can Be Legally Given to a Family Member as a Gift? UK Rules Explained

Gifting money to friends and family while you are still alive can be a practical way to reduce the value of your estate. This can be beneficial to your loved ones, who may owe Inheritance Tax (IHT) on your estate if its value exceeds the tax-free threshold when you die. However, this area of law can be complicated, so it is important that you get professional advice to avoid making any mistakes when giving financial gifts.

Many of us wish to leave gifts in our will to our loved ones, or to give a cash gift while we are still alive so that we can watch our loved ones enjoy the money. Cash gifts can be a huge financial help for family members and friends, both while you are alive and after you have passed away.

In the UK, there are certain laws that dictate how much money you can give to a family member as a gift and when you will pay tax on particular amounts. In this short guide, the probate experts at Percy Hughes & Roberts Solicitors explain everything you need to know about gifting money in the UK, including how much you can gift tax-free, which types of gifts are potentially exempt from Inheritance Tax, and the significant tax implications of the all-important 7-year rule. 

If you have any questions we have not answered, our expert wills and probate solicitors are happy to speak to you regarding your probate query and provide the legal services you need. You can contact us by completing the enquiry form or by calling 0151 666 9090.

What is Inheritance Tax?

Inheritance Tax is a duty paid on the estate of someone who has passed away. It is a one-off tax that must be paid within 6 months of the person's death, at a rate of 40%.

Whether or not this tax applies depends on the value of the estate. An estate is made up of any property, possessions, and money belonging to the deceased, minus any debts that still need to be paid. The estate will need to be valued to determine if any IHT is owed. This is typically one of the first stages of the probate process, and involves checking bank account details, valuing any property and 

Tax is only paid on the value of an estate that exceeds the Inheritance Tax threshold of £325,000. It can be beneficial to reduce the value of your estate before you pass away, as this can help you to avoid a large tax bill, and giving money to family members as a gift while you are alive can help do this.  However, this is not a guaranteed method, as any assets you give as a gift within a particular period before you die may still be subject to IHT. 

What is classed as a gift?

For the purposes of calculating whether you need to pay Inheritance Tax, a gift is anything that has financial value. This might include:

• Property
• Money
• Possessions
• A loss in value when something is transferred to someone, such as selling a property at a discounted rate to a family member – the difference in value will be treated as a gift

However, under certain circumstances, there may be no tax to pay on these assets, as many gifts may be exempt. Whether or not you pay tax on a gift depends on:

• Who receives the gift
• When it is given (whether it was more than seven years before your death, or on a birthday, wedding or other event)
• How much money the gift is worth 

For example, parents are allowed to gift up to £5,000 to their child on their wedding day, and grandparents up to £2,500, before they need to pay tax on the gift. You are also permitted to give tax-free gifts of up to £250 on Christmas and birthdays.

Under most circumstances, you will not need to pay taxes on wedding gifts from other guests because of the allowances that apply. However, there are many intricate regulations that apply to cash gifts. It is worthwhile to get expert legal help if you have any queries, to make sure you pay tax on any gifts that are liable, as other

What is the annual “gift allowance”?

In addition to the exemptions listed above, the UK government offers an annual gift tax allowance to individuals each tax year. This allowance enables a person to gift up to £3,000 in a year without any need to pay tax. This total includes all beneficiaries, so you may be subject to tax if you distribute more than £3,000 among multiple people.

If this annual exemption is not used, it can be rolled over into the following year, meaning the tax-free allowance would become £6,000 for that tax year. However, this annual exemption cannot exceed a total of £6,000.

If you have reached the £3,000 annual exemption and the gift falls outside of the above exemptions, it may be liable for tax. However, the rate of Inheritance Tax is very high at 40%. Gifts given before you die may not be subject to Inheritance Tax, but may instead be taxed at a lower rate, which may still be preferable. 

How much money can you gift to a family member without any IHT liability when you die?

People in marriages or civil partnerships are able to pass their estate to their surviving spouse or civil partner tax-free when they die. The spouse can inherit the entire estate and it will not be subject to IHT under these circumstances.

Spouses and civil partners can also pass on any unused Inheritance Tax allowance to their surviving partner. For Inheritance Tax purposes, this means an allowance of up to £650,000 could apply to the estate when the surviving partner dies. 

In terms of children and other friends and family, you can gift them as much money as you wish. In fact, this applies whether you aim to gift money, assets or anything else in your will - it is entirely up to you and there is no legal limit on how much. But if your estate is valued at more than £325,000, anything you give as a gift will be subject to the 40% IHT liability. 

This is why it is important to take advantage of the tax-free gift benefits while you are still alive, and to plan ahead if you think that your estate may exceed the Inheritance Tax threshold. 

What is the seven-year rule?

While certain gifts are exempt from Inheritance Tax, a very useful legal tool to minimise tax liability is the seven-year rule. The seven-year rule specifically applies to gifts that are given between three and seven years before you die, and while you can use it to reduce your tax liability, it can also catch out people who are unaware of how it applies. 

A gift will usually be completely exempt from Inheritance Tax if you live for more than seven years after you give it to an individual. However, if you die within seven years of giving a gift to a family member or friend, it may count towards the value of your estate. If the value of your estate then exceeds the £325,000 allowance, this gift will no longer be tax-free. 

If you give a gift and die between three and seven years after handing the asset over, the amount of tax payable on the asset tapers on a sliding scale. This scale is:

This is why parents and grandparents often give their children money gifts before they pass away, as this can help to avoid a certain amount of tax liability. For high net-worth individuals, it is especially important to calculate your potential IHT liability and plan accordingly, to ensure that your beneficiaries receive as much of your estate as possible. You can read more in our extensive guide to the seven-year inheritance tax rule.

How can Percy Hughes & Roberts help? 
At Percy Hughes & Roberts Solicitors, we have a team of dedicated wills and probate solicitors who are ready to help resolve your query or issue relating to this area of the law as quickly and effectively as possible.

Planning to minimise your Inheritance Tax bill before you pass away can be hugely beneficial to your loved ones. Being aware of how much you can gift to certain people tax-free can ensure your family receives as much inheritance as possible. It is helpful to consult expert advice on when to gift money, how much to give, and to whom.

Our probate solicitors have a wealth of experience in helping people plan ahead and can help you write your will in a way that minimises any hefty Inheritance Tax bills, or advise you on trusts and other structures that can reduce your liability. They can assist you in this complex area of law and ensure you have peace of mind when it comes to passing on your estate when you die.