Inheritance Tax Annual Exemption UK (2026): Gifting £3,000 a Year Tax-Free
Updated 13 May 2026 · 8 min read · England & Wales
The inheritance tax annual exemption allows every UK resident to give away up to £3,000 each tax year completely free of inheritance tax — immediately outside the estate, with no seven-year survival requirement. Combined with other IHT gift exemptions, a systematic gifting strategy can significantly reduce the IHT exposure on a large estate over time.
The annual exemption: the basics
Under s19 Inheritance Tax Act 1984, each individual can make gifts totalling up to £3,000 per tax year (6 April – 5 April) that are immediately outside the estate for IHT. The £3,000 can be:
- One gift to one person
- Split across multiple people in any amounts
- Combined with other exemptions (marriage gift, small gifts, normal expenditure out of income)
The exemption has been frozen at £3,000 since 1981. There is no indexation for inflation. At the current rate, a couple using both their annual exemptions each year for 10 years gives away £60,000 tax-free.
Carry-forward: using last year’s unused allowance
If you did not use all (or any) of your annual exemption in the previous tax year, you can carry the unused amount forward for one year only. The carry-forward is used after the current year’s exemption.
| Previous year used | Amount carried forward | Total available this year |
|---|---|---|
| £0 used | £3,000 | £6,000 |
| £1,000 used | £2,000 | £5,000 |
| £3,000 used | £0 | £3,000 |
Unused exemptions from two or more years ago are lost — they cannot be accumulated over multiple years. Use it or lose it: if you missed last year, use this year’s gift to capture the carry-forward before the tax year ends on 5 April.
Other annual gift exemptions that stack
The annual exemption combines with several other IHT exemptions, each with their own rules:
| Exemption | Limit | Key rules |
|---|---|---|
| Annual exemption | £3,000/year per person | Carry forward one year; used after current year |
| Small gifts | £250/recipient/year | Unlimited recipients; cannot top up annual exemption gifts |
| Marriage gift (parent) | £5,000 per child’s wedding | Must be made before or on wedding day |
| Marriage gift (grandparent/other relative) | £2,500 per wedding | Same timing rule |
| Marriage gift (anyone else) | £1,000 per wedding | Same timing rule |
| Normal expenditure out of income | No limit | Must be habitual, from income (not capital), leave adequate income for normal standard of living |
Normal expenditure out of income: the most powerful exemption
The most valuable IHT gift exemption — and the most under-used — is normal expenditure out of income (s21 IHTA 1984). Gifts that meet all three conditions are immediately outside the estate with no limit and no seven-year period:
- Part of the donor’s normal expenditure (habitual, regular pattern)
- Made from income, not capital (pension, salary, rental income)
- The donor is left with sufficient income for their usual standard of living after making the gift
Examples: paying grandchildren’s school fees each term; regular monthly gifts to children from pension income; paying life insurance premiums for another person. HMRC scrutinises these on death — keep clear records showing the pattern and the income source (form IHT403).
Worked example: systematic gifting
Margaret (73) has a pension income of £30,000/year and an estate of £900,000. She wants to reduce IHT exposure. Her strategy:
- Annual exemption: £3,000/year to her daughter (£6,000 in year 1, using last year’s carry-forward)
- Small gifts: £250 each to 4 grandchildren = £1,000/year
- Normal expenditure out of income: £500/month (£6,000/year) to help with grandchildren’s costs — habitual, from pension income, leaves her adequate living income
Total IHT-free gifting per year: up to £10,000. Over 10 years: £100,000 removed from the taxable estate, saving £40,000 in IHT (at 40%) — without any seven-year risk on the income gifts, and with seven-year PET taper applying to any larger one-off gifts on top.
Interaction with potentially exempt transfers (PETs)
Gifts that exceed the available exemptions — or gifts that do not qualify for any exemption — become potentially exempt transfers (PETs). A PET is only fully outside the estate if the donor survives 7 years from the date of the gift. If death occurs within 7 years, the PET is brought back into the estate (with taper relief reducing the effective IHT rate for gifts made 3–7 years before death).
The annual exemption is applied first — it reduces the amount of a gift that falls into PET territory. So if you give £10,000, the first £3,000 is immediately exempt; the remaining £7,000 is a PET subject to the 7-year rule.
Frequently asked questions
How much can I give away each year free of inheritance tax?
The annual exemption is £3,000 per tax year (6 April to 5 April). You can give this £3,000 to one person or split it across several people in any combination. If you did not use your annual exemption in the previous tax year, you can carry it forward for one year only — giving a maximum of £6,000 in a single year if you have not used either year's allowance. The exemption has been frozen at £3,000 since 1981.
Can my spouse or civil partner also use the annual exemption?
Yes. Each person has their own annual exemption of £3,000. A married couple or civil partners can therefore give away a combined £6,000 per year (or £12,000 if both carry forward one previous year's unused allowance). The exemptions are personal — they cannot be combined into a joint gift from a single allowance.
What is the small gifts exemption?
Separate from the annual exemption, you can make any number of gifts of up to £250 per person per tax year to as many people as you like, completely free of IHT. You cannot use the small gifts exemption to top up a gift to someone who has already received part of your £3,000 annual exemption. The £250 limit is per recipient, per year — so you could give £250 to each of 20 different people (total £5,000) tax-free under this exemption alone.
What is the marriage gift exemption?
When someone gets married or enters a civil partnership, you can give them a tax-free gift: a parent can give £5,000; a grandparent or other relative can give £2,500; anyone else can give £1,000. These amounts are in addition to the annual exemption and apply per wedding. The gift must be made before or on the day of the wedding — gifts made after the ceremony do not qualify. If the wedding is called off, any gift made in anticipation of it loses this exemption.
How does the annual exemption interact with potentially exempt transfers (PETs)?
When you make a gift, HMRC applies exemptions in a specific order. The annual exemption (and other specific exemptions) are applied first. Only the balance — the amount not covered by exemptions — becomes a potentially exempt transfer (PET). A PET falls completely outside the estate if the donor survives 7 years. So the annual exemption reduces the amount that needs the 7-year survival period; gifts within the annual exemption are immediately outside the estate with no survival period required.
Does the annual exemption apply to gifts into a trust?
Yes, but with a restriction. Gifts into most trusts are chargeable lifetime transfers (CLTs), not PETs. The annual exemption can be applied against a CLT to reduce the amount on which the 20% entry charge applies. However, gifts into bare trusts and certain other trusts are treated as PETs — the annual exemption still reduces the chargeable amount.
What records should I keep of my annual exemption gifts?
HMRC may request details of gifts made in the 7 years before death when calculating IHT on an estate. Keep a record of: the date of each gift, the recipient, the amount or value, and which exemption you are claiming. A simple spreadsheet updated each tax year is sufficient. Your executor will need this information to complete form IHT403 (gifts and other transfers of value).
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Get the will kit →Related guides
- IHT and gifts — all the rules
- The seven-year rule for IHT gifts
- How to reduce your IHT bill
- Taper relief — how it works on gifts
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