Look a Gift Horse in the Mouth

Look a Gift Horse in the Mouth

By Nadine Baynes

Published: 19 Dec 2025

Christmas is a time for generosity, and many people think about sharing their wealth with loved ones. Whether it’s helping with a house deposit or passing on treasured jewellery, gifting during your lifetime can feel like a wonderful way to spread joy. But before you start, it’s worth understanding how gifts can affect Inheritance Tax.

Inheritance Tax is calculated on the value of your estate when you die. While transfers between spouses or civil partners are not subject to tax, many people don’t realise that even gifting money to your children can affect the Inheritance Tax position of your estate. And it’s not just cash; property, jewellery and other valuable items are included too.

However, there are exceptions, so it is important to know your allowances:

• Annual Exemption: You can gift up to £3,000 each tax year, and carry forward any unused allowance from the previous year.
• Small Gifts: Up to £250 per person each tax year.
• Regular Gifts from Income: If you have surplus income, you can make regular gifts without affecting your estate.
• Wedding or Civil Partnership Gifts: You can give tax-free gifts to someone getting married or entering a civil partnership:
  • Up to £5,000 to a child
  • Up to £2,500 to a grandchild or great-grandchild
  • Up to £1,000 to any other person
• Charitable Gifts: Donations to charities are always exempt.

What About Larger Gifts?

Gifts larger than £3,000 may affect your Inheritance Tax position, however if you live for 7 years after giving the gift, no tax is due. This is known as the 7 Year Rule. However, if you die within 7 years of giving the gift, the amount of tax depends on the value of your estate and when you gave the gift.

Keep Good Records

Any gifts made should be well documented as this will assist your Executors in determining whether Inheritance Tax will be due as a result. The reason for the gift, who the gift was made to and their relationship to you, the amount and the date should all be recorded.

Speak to our Wills and Probate specialists for clear guidance on gifts and tax planning. Call us on 01962 844544 and give with confidence this festive season.