IHT Gifts to Children UK: Inheritance Tax on Giving Money to Your Adult Children (2026 Guide)
Giving money to your adult children reduces your estate for IHT — but the 7-year PET rule applies. Annual exemptions (£3,000/year) are immediately outside IHT. Larger gifts start the 7-year clock. Help with house deposits, school fees, and regular income gifts all have specific IHT rules.
IHT Rules for Gifts to Adult Children
Gifts to adult children: the 7-year PET rule
A gift of money or assets from a parent to an adult child is a potentially exempt transfer (PET) under s3A IHTA 1984. A PET is not immediately charged to IHT — instead, it starts a 7-year clock. If the parent survives 7 years from the date of the gift, the PET is fully exempt: it is outside the estate with no IHT at all. If the parent dies within 7 years, the PET becomes a 'failed PET' and is brought back into the IHT calculation. The amount of IHT due depends on: (1) the size of the gift; (2) whether the nil rate band (£325,000) covers it; (3) how many years elapsed between the gift and death (taper relief reduces the tax for deaths 3–7 years after the gift). A gift of £50,000 to help a child buy a house starts a 7-year clock immediately — the key is to start the clock as early as possible.
The nil rate band and large gifts to children
The nil rate band (NRB, £325,000 in 2026/27) is applied to chargeable transfers in the 7 years before the gift, then to the gift itself. If the parent has made no other gifts in the preceding 7 years, the full £325,000 NRB is available against the gift to the child. Example: Parent makes a gift of £300,000 to a child and dies 2 years later. Available NRB = £325,000. The £300,000 is fully within the NRB — no IHT on the gift despite dying within 3 years. But if the parent had already made a CLT to a trust 3 years before the gift of £325,000, the NRB is exhausted — the full £300,000 gift to the child is chargeable at 40% (or with taper if 3–7 years have elapsed since the gift). The 7-year cumulation period means gifts to trusts can affect the NRB available on subsequent gifts to children.
Using annual exemptions before making large gifts
Several IHT exemptions allow gifts to children that are immediately outside the estate with no 7-year wait: (1) Annual exemption (s19 IHTA 1984): £3,000 per parent per tax year. Each parent can give £3,000 per year. Unused annual exemption carries forward one year only. A couple can give £6,000/year and £12,000 in the first year (using the carried-forward prior year allowance). (2) Small gifts (s20 IHTA 1984): £250 per recipient per tax year. Can give £250 each to any number of people. Cannot use the small gift exemption on top of the annual exemption to the same person. (3) Normal expenditure from income (s21 IHTA 1984): gifts made out of surplus income, as part of a habitual pattern, are fully exempt with no annual cap. A grandparent paying a grandchild's school fees regularly from their pension income could qualify. (4) Marriage gift (s22 IHTA 1984): up to £5,000 from each parent on the occasion of a child's marriage or civil partnership.
Helping children with house deposits and large gifts
Parents frequently help adult children buy a home. The IHT treatment depends on how the gift is structured: (1) Outright gift as a deposit: this is a PET, starting the 7-year clock. The parent must not retain any interest in the property — if the parent moves in or is named on the mortgage, the gift may be a gift with reservation (GWR under FA 1986 s102), which stays in the estate at death regardless of when the gift was made. (2) Loan for the deposit: if the parent loans the money rather than gifts it, the loan is an asset of the parent's estate — it doesn't reduce the estate for IHT until written off (when a PET arises). (3) Parental settlement rules: if the child is a minor (under 18), any income arising from the gift is taxed on the parent under ITTOIA 2005 ss629–632. This does not affect IHT (income tax only), but the rule applies until the child turns 18. Once the child is 18, income from parental gifts is taxed on the child.
Gift with reservation: the home-sharing trap
A gift with reservation (GWR) arises where a parent gives an asset to a child but continues to benefit from it. The most common trap: a parent transfers their home to a child but continues to live there rent-free. Under FA 1986 s102, the property remains in the parent's estate at death at its then-market value — as if no gift was ever made. The 7-year clock is irrelevant while the reservation continues. To escape GWR on a gifted property, the parent must pay full market rent to the child. The Pre-Owned Assets Tax (POAT, FA 2004 Schedule 15) provides an alternative: instead of IHT, the parent pays income tax on the annual rental value of the gifted property they continue to use. POAT can be elected in lieu of GWR treatment.
Documenting gifts: why record-keeping matters
Executors are legally required to declare all gifts made by the deceased in the 7 years before death on form IHT403 (Schedule to IHT400). Undisclosed gifts can result in IHT penalties of up to 100% of the unpaid tax. Parents and children should keep records of: (1) the date and amount of each gift; (2) the method of payment (bank transfer records); (3) the source of the funds (for normal expenditure from income claims); (4) evidence of annual exemption use (carried-forward prior year exemption must be documented). HMRC also scrutinises undisclosed gifts identified through bank statements or land registry records. Good records protect the estate and make the executor's job significantly easier.
Frequently Asked Questions
How much can I give my adult children without inheritance tax?
Each parent can give £3,000 per year as an annual exemption (immediately exempt, no 7-year wait). Plus £250 per recipient per year as small gifts (separate from the annual exemption). Plus gifts out of surplus income (no cap, must be habitual and from income not capital). Additionally, any amount can be given as a PET — it starts the 7-year clock immediately, with full exemption if you survive 7 years. The amount that avoids IHT even if you die within 3 years of a PET is the nil rate band (£325,000 in 2026/27) — gifts within this are absorbed by the NRB.
Does giving my child money for a house deposit reduce my inheritance tax?
Yes — if structured correctly as an outright gift (a PET). The gift reduces your estate immediately and starts the 7-year clock. If you survive 7 years, the gift is fully exempt from IHT. If you die within 7 years, the gift is brought back into the IHT calculation. Critical: you must not retain any benefit in the property (e.g. do not move in or receive rent from the child's property). Retaining a benefit makes it a gift with reservation (GWR) — the property stays in your estate at full market value on death, undoing the IHT planning.
What is taper relief on gifts to children?
If you make a large gift to your child (a PET) and die within 7 years, taper relief reduces the IHT payable where death occurs 3–7 years after the gift. Taper reduces the rate of tax — not the value of the gift. The schedule: 0-3 years = 40% IHT (full rate); 3-4 years = 32%; 4-5 years = 24%; 5-6 years = 16%; 6-7 years = 8%; 7+ years = exempt. Taper only applies to the excess above the available nil rate band — if the gift is within the NRB, no IHT applies regardless of taper.
Can I give my child money regularly from my pension or salary to reduce IHT?
Yes — this is the 'normal expenditure from income' exemption under s21 IHTA 1984. Regular gifts made out of surplus income (pension, salary, investment income) that are part of a habitual pattern are exempt from IHT with no annual cap and no 7-year wait. You must demonstrate: (1) the gifts are habitual (regular, not one-off); (2) they come from income (not savings or investments); (3) they do not reduce your standard of living. HMRC requires evidence on form IHT403 — keep records of income, expenditure, and gift amounts.
If my child is under 18, do parental settlement rules affect the gift?
Parental settlement rules (ITTOIA 2005 ss629–632) mean that income arising from money given by a parent to their minor child (under 18, unmarried) is taxed on the parent for income tax purposes. This is an income tax rule only — it does not affect IHT. The gift is still a PET for IHT starting the 7-year clock. Once the child turns 18, income from the gifted funds is taxed on the child, not the parent.
Record Your Gifts in Your Will
Your executors need to know about all gifts made in the 7 years before your death to complete the IHT return correctly. A WillSafe will kit for England and Wales comes with guidance on recording gifts and choosing executors who understand the process.
View Will Kits from £39.99