Gifts Exempt from Inheritance Tax UK (2026): Every IHT Gift Exemption Explained

The spouse or civil partner exemption under IHTA 1984 s.18 is the most valuable IHT exemption available and applies both to lifetime gifts and to transfers on death: (1) THE BASIC RULE: transfers between spouses or civil partners are completely exempt from IHT — there is NO cap on the amount, and the timing of the gift does not matter. Whether made during the testator's lifetime or on death (through the will), the transfer is fully exempt; (2) UK-DOMICILED SPOUSE OR CIVIL PARTNER: where BOTH parties are domiciled in the UK (or treated as UK-domiciled), the exemption is unlimited in amount; (3) NON-UK-DOMICILED RECIPIENT SPOUSE (IHTA s.18(2)): where the RECIPIENT spouse or civil partner is NOT UK-domiciled, the spouse exemption is capped at £325,000 — the same as the nil-rate band. Transfers above £325,000 to a non-domiciled spouse are subject to IHT at 40% on the excess; (4) ELECTION UNDER s.267ZA: a non-UK-domiciled spouse can elect to be treated as UK-domiciled for IHT purposes. This gives them the full unlimited exemption — but also makes their worldwide assets subject to UK IHT. The election is irrevocable while the marriage/civil partnership subsists; (5) COHABITING PARTNERS: the spouse exemption does NOT apply to unmarried cohabiting partners. A gift to a cohabiting partner is a potentially exempt transfer (PET) — if the donor dies within 7 years, the gift will be charged to IHT to the extent it exceeds the nil-rate band; (6) TRANSFERABLE NIL-RATE BAND: the unused nil-rate band of a predeceased spouse or civil partner is transferable to the surviving spouse's estate (IHTA s.8A). The surviving spouse's estate can benefit from up to 100% of the unused NRB, doubling the NRB available to a maximum of £650,000 (£325,000 + £325,000); (7) IMPORTANT NOTE: gifts to a spouse do NOT use the annual exemption, the 7-year clock, or any other relief — they are simply exempt from IHT outright. They should not be confused with PETs (which require the donor to survive 7 years).

These three exemptions shelter the most commonly made gifts from IHT: (1) ANNUAL EXEMPTION (IHTA s.19 — £3,000 per tax year): each individual can give away up to £3,000 per TAX YEAR completely exempt from IHT. Key rules: (a) the exemption is £3,000 per year — not per recipient; it can be split between multiple recipients; (b) CARRY-FORWARD: if the full £3,000 is not used in a tax year, the unused portion can be carried forward ONE year only. So in Year 2, if Year 1 was entirely unused, up to £6,000 can be given exempt; (c) ORDERING: the annual exemption is applied BEFORE any PETs. Gifts made first in the tax year use the annual exemption first; (d) DOES NOT COVER ITSELF: the £3,000 annual exemption applies per DONOR — each spouse or civil partner has their own £3,000 per year, giving a combined £6,000 (or up to £12,000 with two years' carry-forward); (2) SMALL GIFTS EXEMPTION (IHTA s.20 — £250 per person): a donor can give up to £250 to any number of individuals in a tax year, completely exempt from IHT. Key rules: (a) the £250 limit is per RECIPIENT — a donor can give £250 to as many different people as they wish; (b) the small gifts exemption CANNOT be combined with the annual exemption for the same recipient — if a donor gives their daughter £3,250, they cannot say £250 is small gifts and £3,000 is annual exemption. Only one exemption applies to any one recipient per year; (c) it can be combined with PETs for different recipients; (3) MARRIAGE AND CIVIL PARTNERSHIP GIFTS (IHTA s.22): gifts made in consideration of a marriage or civil partnership are exempt up to the following limits: (a) a parent of either party: up to £5,000; (b) a grandparent or great-grandparent: up to £2,500; (c) one party to the marriage/civil partnership to the other: up to £2,500; (d) anyone else: up to £1,000; (e) TIMING: the gift must be made on or before the date of the ceremony (or unconditionally before — contingent on the marriage taking place). Gifts made after the ceremony are NOT covered by s.22; (f) FAILED MARRIAGE: if the marriage does not take place, the exemption is lost and the gift becomes a PET.

The normal expenditure out of income exemption under IHTA 1984 s.21 is the most powerful IHT exemption for regular, ongoing giving — it has no annual monetary cap and can shelter very large amounts: (1) THE THREE CONDITIONS (all must be satisfied): (a) PART OF NORMAL EXPENDITURE: the gift must be part of the donor's normal (habitual, regular) expenditure — not a one-off or exceptional payment. HMRC looks for a pattern of giving; (b) OUT OF INCOME: the gift must be made out of income — not out of capital. Income includes employment income, rental income, dividends, pension income, interest. Capital (e.g. sale of investments) does not qualify; (c) REASONABLE STANDARD OF LIVING: after making the gift, the donor must be left with sufficient income to maintain their own reasonable standard of living; (2) EXAMPLES OF QUALIFYING GIFTS: (a) standing order payments to children or grandchildren made annually from pension income; (b) payment of grandchildren's school fees from regular income; (c) regular premium payments for a life insurance policy in trust for the recipient; (d) regular contributions to a child's ISA from salary or pension; (e) annual birthday and Christmas gifts made out of regular income (if habitual and quantified); (3) HMRC EVIDENCE REQUIREMENTS (form IHT403): the executor must complete HMRC Schedule IHT403 listing the donor's income and expenditure in each year of giving. HMRC requires: (a) years of gifts; (b) amounts of each gift; (c) total income for each year (salary, pensions, dividends, rent, interest); (d) total normal expenditure in each year (living costs); (e) the surplus income from which the gifts were made. The burden of proof is on the estate to demonstrate the s.21 conditions; (4) PITFALLS: (a) gifts from capital do NOT qualify — even if the donor's income is sufficient in principle, if that particular gift came from a capital sale, it fails; (b) a single large gift does not qualify — it lacks the 'normal expenditure' character; (c) if the donor was left short of income to maintain their standard of living (had to dip into savings to pay bills), the gifts will fail; (5) COMBINATION WITH OTHER EXEMPTIONS: normal expenditure out of income operates separately from and IN ADDITION to the annual exemption. A donor with sufficient regular income can give away £3,000 under the annual exemption and further amounts under s.21 in the same year.

These three exemptions apply to specific categories of recipients: (1) CHARITY EXEMPTION (IHTA s.23): gifts to qualifying charities are completely exempt from IHT — there is no monetary cap. The exemption applies both to lifetime gifts and to gifts made in a will: (a) the charity must be a 'qualifying charity' — one that is established in the UK, EU, EEA, or other approved territory and registered with the Charity Commission (for England and Wales); (b) the exemption applies to gifts of cash, property, investments, or any other asset; (c) INTERACTION WITH THE 10% CHARITY RULE: if a testator leaves at least 10% of the 'baseline amount' of their estate to qualifying charities, the IHT rate on the remainder of the estate is reduced from 40% to 36% (IHTA s.24A; Finance Act 2012). This can generate a double benefit — charity is exempt AND the rate on the rest falls; (2) POLITICAL PARTY EXEMPTION (IHTA s.24): gifts to qualifying political parties are exempt from IHT. A qualifying party must satisfy one of two conditions: (a) it has at least two members elected to the House of Commons; OR (b) it has one member elected to the House of Commons AND received at least 150,000 votes at the last general election. The exemption has no monetary cap; (3) NATIONAL PURPOSES EXEMPTION (IHTA s.25): gifts to certain bodies serving national purposes are exempt. These include: (a) the National Gallery, British Museum, National Trust, and similar bodies listed in IHTA Schedule 3; (b) universities; (c) government departments; (d) local authorities; (e) registered housing associations. The asset must be accepted by the relevant body; (4) MAINTENANCE FUNDS FOR HISTORIC BUILDINGS (IHTA s.27): gifts into a maintenance fund for historic buildings or land listed in IHTA Schedule 4 are exempt. The fund must be used for the maintenance, repair, or preservation of the listed building or garden. This exemption applies to large estates where the property is of national heritage interest; (5) MAINTENANCE PAYMENTS (IHTA s.11): certain maintenance payments are exempt from IHT — including reasonable payments for the maintenance, education, or training of a child of the transferor or the spouse/civil partner, and reasonable provision for a dependent relative. These are not gifts in the conventional sense but transfers of value.

The IHT gift exemptions operate alongside — not instead of — the potentially exempt transfer (PET) regime under IHTA 1984 s.3A. Understanding how they interact is essential for effective planning: (1) EXEMPT GIFTS ARE NOT PETS: a gift that is fully covered by an IHT exemption (annual, small gifts, normal expenditure from income, charity, spouse) is simply exempt — it is NOT a PET. It does not need to be survived for 7 years. It does not appear on IHT403 as a PET. It is removed from the IHT calculation entirely; (2) GIFTS EXCEEDING AN EXEMPTION — THE BALANCE IS A PET: if a gift exceeds the relevant exemption, the excess becomes a PET: (a) example: a parent gives £13,000 to their child in one year. The annual exemption covers £3,000 (£6,000 if carrying forward from prior year). The balance (£7,000 or £10,000) is a PET — exempt from IHT only if the parent survives 7 years; (b) the 7-year clock starts from the date of the gift, not the date the exemption was claimed; (3) ORDER OF APPLYING EXEMPTIONS: HMRC applies exemptions in the following order when a gift is made: (a) annual exemption (s.19) first; (b) small gifts (s.20) for different recipients; (c) marriage gift exemption (s.22) if applicable; (d) normal expenditure from income (s.21) if applicable. The balance after applying all available exemptions is the PET amount; (4) CHARGEABLE LIFETIME TRANSFERS (CLTs): gifts to discretionary trusts and certain other entities are CLTs — chargeable immediately at 20% (halved rate) to the extent they exceed the NRB, rather than being PETs. Exemptions apply equally to reduce the CLT amount; (5) FAILED PETS AND TAPER RELIEF: if the donor dies within 7 years of making a PET, the PET becomes chargeable. Taper relief reduces the IHT rate after 3 years (from 40% to 32% after 3-4 years; 24% after 4-5 years; 16% after 5-6 years; 8% after 6-7 years). Taper relief applies to the TAX — not the value of the gift; (6) CUMULATION: PETs and CLTs within the 7 years before death are cumulated to determine how much of the NRB has been used by the time the estate is taxed on death.