How much can you give away free of inheritance tax?

Inheritance tax applies across the whole UK, in England, Northern Ireland, Scotland and Wales. Every figure here is for the 2026/27 tax year unless the text says otherwise, and each comes from the law or official guidance listed at the end.

Why a well-funded pension matters here

Today most unused money in a defined contribution pension can pass on after death without inheritance tax. For deaths on or after 6 April 2027, most unused pension funds and pension death benefits count as part of the estate.

This is law, enacted in the Finance Act 2026, and it takes effect from that date. The personal representatives, the people dealing with the estate, report and pay any tax due on the pension. They can direct the scheme to hold back part of the taxable benefits while that is settled. Death in service benefits from a registered pension scheme are left out.

So a pension that sits outside the estate today may sit inside it after that date. That is why gifts during life have become a live question for people who expect to leave pension money unspent.

The thresholds that decide whether tax is due

Inheritance tax is charged at 40% on the part of an estate above the tax-free threshold, called the nil-rate band. The nil-rate band is £325,000.

It can rise to £500,000 when a home, or a share of one, goes to direct descendants. The extra amount is the residence nil-rate band, £175,000. Direct descendants include children, grandchildren, step-children, adopted children and foster children, but not nephews, nieces or siblings.

For an estate worth more than £2,000,000, the extra amount falls by £1 for every £2 above that figure. It is gone once the estate reaches £2,000,000 + £175,000 × 2 = £2,350,000.

A spouse or civil partner who dies without using all of their threshold can pass the unused part to the survivor. Gifts between spouses or civil partners who live permanently in the UK are free of inheritance tax, and so are gifts to charities.

An estate can pay a lower rate of 36% on some assets if 10% or more of its net value is left to charity. Both thresholds are frozen by law up to and including the 2030 to 2031 tax year.

Gifts that are free of inheritance tax straight away

These gifts are exempt as soon as they are made, and they stay exempt even if the giver dies within seven years.

• The annual exemption. Up to £3,000 in total each tax year, to one person or split between several. Any unused part carries forward, but only for one tax year.
• Small gifts. Up to £250 each to as many people as you like each tax year, as long as no other allowance has been used on the same person.
• Wedding and civil partnership gifts. Up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, and £1,000 to anyone else.
• Regular gifts from income. There is no cash limit, but each gift has to meet three tests, set out below.

The tax year runs from 6 April to 5 April. The wedding allowance and regular gifts from income can be combined with the annual exemption for the same person, but not with the small gifts allowance.

Regular gifts from income

This exemption is called normal expenditure out of income. HMRC’s manual says a gift qualifies only if all three of these are true.

• It formed part of the giver’s normal pattern of spending.
• It was made out of income, not out of capital.
• After making it, the giver still had enough income to keep up their usual standard of living.

GOV.UK gives paying into a savings account for a child under 18 as an example. HMRC’s manual says the exemption does not normally cover gifts of capital assets, and that part of a single gift can qualify with the rest treated under other rules.

Whoever deals with the estate has to show the tests were met. A record of each gift helps: what was given, to whom, its value and the date.

Gifts that rely on the seven-year rule

A gift no exemption covers is called a potentially exempt transfer. No tax is due when it is made, and if the giver lives for 7 years afterwards it falls out of the inheritance tax calculation completely.

Gifts into most trusts follow different rules, which this guide does not cover. A gift the giver keeps benefiting from, such as a home given to a relative but still lived in without paying a market rent, is a gift with reservation. It stays in the estate.

What happens if the giver dies within seven years

• The gift uses up the threshold first. Gifts made in the seven years before death are set against the £325,000 nil-rate band before the rest of the estate is. A gift under the threshold carries no tax itself, but leaves less threshold for the estate.
• Any tax on the gift depends on timing. Where tax is due on a gift made in the 3 years before death, the rate is 40%. Where the gift was made three to seven years before death, a lower rate applies, known as taper relief.
• The person who received the gift may pay. Tax on gifts is usually paid by the estate. Once more than £325,000 has been given away in the seven years before death, the people who received gifts in that period pay any tax due on them.

Taper relief applies only if the gifts made in the seven years before death total more than the £325,000 threshold. It lowers the rate on the part of a gift above the threshold, not the gift’s value.

Two worked examples

The people and sums are invented. In the first, a woman gives her son £400,000, having already used her annual exemptions on other gifts. She makes no other gifts and dies four and a half years later.

• The first £325,000 of the gift is covered by the nil-rate band.
• The taxable part is £400,000 − £325,000 = £75,000.
• The gift was made four to five years before death, so the rate is 24%.
• Tax on the gift is £75,000 × 24% = £18,000. Her son pays it, because her gifts came to more than £325,000.
• Her nil-rate band is used up, so none of it is left for the rest of her estate.

Had she died within three years, the tax on the gift would have been £75,000 × 40% = £30,000.

In the second, a man gives his daughter £200,000 two years before he dies. He leaves no home to direct descendants and no spouse, and the rest of his estate is worth £500,000.

• The gift is under £325,000, so no tax is due on the gift itself.
• It uses £200,000 of his nil-rate band, leaving £325,000 − £200,000 = £125,000.
• The estate is taxed on £500,000 − £125,000 = £375,000.
• Tax on the estate is £375,000 × 40% = £150,000.

Taper relief does not help here, because his gifts did not come to more than the threshold.

Junior ISAs

A Junior ISA is a long-term, tax-free savings account for a child under 18 who lives in the UK. A child cannot hold both a Junior ISA and a Child Trust Fund.

• The savings limit is £9,000 in the 2026/27 tax year, the total paid in across all of a child’s Junior ISAs.
• There are cash and stocks and shares versions, and a child can hold one or both.
• A parent or guardian with parental responsibility opens and manages it, but the money belongs to the child.
• The child can take control of the account at 16, and cannot withdraw money until 18.

Anyone can pay into a Junior ISA. Money paid in is a gift from whoever pays it, covered by the annual exemption, by regular gifts from income or by the seven-year rule. Once paid in, it belongs to the child and cannot be taken back.

Paying into a pension for a child

A personal pension can be opened for a child. Contributions get tax relief at source: the provider claims 20% from the government and adds it to the pot, including when someone else, such as a grandparent, pays in. This works the same way across the UK.

Someone with no earnings gets tax relief on contributions of up to £2,880 in a tax year. With relief added, that becomes £3,600 in the pot: £3,600 × 20% = £720 of relief, and £2,880 + £720 = £3,600. Whether a provider accepts payments from relatives is for that provider.

The child cannot draw the money for decades. The earliest age most people can take money from a pension is 55, legislated to rise to 57 from 6 April 2028. The age that will apply when today’s children reach later life is not known. As with a Junior ISA, money paid in is a gift, under the same exemptions and the same seven-year rule.

An illustration: 3 years of payments, 55 years on

This is an illustration, not a forecast. What rests on law: £2,880 is paid in each year for 3 years, and relief lifts each payment to £3,600. The payer puts in £8,640 in total, and £10,800 reaches the pot.

What rests on assumption: growth after charges at three rates above inflation, inflation of 2% a year throughout, the contribution limit unchanged in cash terms, and nothing withdrawn or added for 55 years.

How the numbers are worked. Growth in cash terms is 1.04 × 1.02 − 1 = 6.08% for the middle row. The first payment grows for 55 years, the second for 54 and the third for 53. Today’s money divides the pot by 1.02 to the power 55, about 2.97.

• A child who is newborn today would be 55 at the end of this period, below the earliest age to draw a pension, so the pot would keep growing until it can be drawn.
• How withdrawals will be taxed in 55 years is not known.
• Real returns vary from year to year and can be negative, which a single steady rate hides.
• Charges vary between providers. A difference of one percentage point a year in charges moves the result by roughly one row.

Where your own circumstances come in

How these rules apply turns on things only you know. They include the size and shape of your estate, whether you are married or in a civil partnership, and whether you own a home. They also include how much spare income you have and how long your pension may need to last.

Once a gift is made, it cannot usually be undone. Money given away is no longer there to pay for later-life costs such as care.

This guide informs. It does not say whether to give, how much or to whom. That turns on your own circumstances. MoneyHelper gives free, impartial guidance on pensions and money, and a regulated financial adviser or a solicitor who specialises in estate planning can advise on your own case.

How Landfall handles it

Inheritance tax is estimated once, on what the household leaves after the last year. It sits outside Tax over the plan, and Plan detail gives it under “What happens at the end”.