What is gifting?

The act of giving money or items to friends, family or charities whilst you’re alive, rather than waiting until you’ve died.

About Gifting - Types of gifts

There are different types of gifts, and each comes with different tax implications. Understanding these differences can help you give in a way that maximises what you leave behind to the people and causes you love.

• Cash Gifts: Giving a fixed amount e.g. a lump sum of money.
• Property & Assets: Giving someone a property or asset.
• Gifts into Trusts: Setting up trusts to manage assets for beneficiaries.

ADVANTAGES OF GIFTING WHILST YOU’RE ALIVE

• It can reduce your inheritance tax liability (if qualifying) by minimising the overall value of your estate.
• It can allow you to support people with key life steps (e.g. helping your children towards a deposit on a first house) or at a time of need.
• Potential other tax benefits, for example gifting to charity can have tax benefits.
• Studies suggest that philanthropists tend to live longer and experience better overall wellbeing.
• You can see the impact of your gift whilst you’re alive.

About Gifting - Rules and Exemptions

POTENTIALLY EXEMPT TRANSFERS (PETS)

A Potentially Exempt Transfer (PET) is a type of gift made by an individual (called the donor) to another person(s) or trust (called the beneficiary) that may become exempt from inheritance tax if the person giving the gift survives for seven whole years after making the gift.

If the donor dies within 7 years, the gift may be included in your nil-rate band (currently £325,000), this means that any amount above that may be subject to inheritance tax.

Taper relief can reduce the tax due on anything above the nil-rate band if you survive between 3 and 7 years after making the gift.

GIFTS TO YOUR SPOUSE (SPOUSAL GIFTS)

For inheritance tax purposes, there are no restrictions on gifts that you make to your spouse, either while you’re alive or upon death, if your spouse is domiciled in the UK. If the recipient spouse is non-UK-domiciled, the exemption is currently capped at £325,000 (unless they elect to be treated as UK-domiciled).

ANNUAL EXEMPTION

You can give away up to £3,000 total each tax year without it being added to the value of your estate. If unused, this allowance can be carried forward one year (so up to £6,000 over a two year period).

SMALL GIFTS EXEMPTION

You can give up to £250 per person each tax year to as many individuals as you like, provided they haven’t received another exempt gift from you that year.

WEDDING GIFTS

Gifts given in consideration of marriage or civil partnership are exempt up to certain limits: £5,000 from a parent, £2,500 from a grandparent, and £1,000 from anyone else. These gifts are only exempt if the wedding / civil partnership takes place.

GIFTS MADE OUT OF SURPLUS INCOME

Regular gifts made from surplus income can be exempt from inheritance tax if they don’t affect your standard of living. The application of these can be complex so it can be worth taking advice.

GIFTING TO ORGANISATIONS

Gifts to UK-registered charities, community amateur sports clubs (CASCs), and qualifying political parties are exempt from inheritance tax, whether made during your lifetime or on death.

GIFTS INTO TRUST

If you want to retain more control, you might consider a gift into trust. Trusts can allow you to control how and when assets are used, making them useful for protecting wealth for young, vulnerable, or financially inexperienced beneficiaries. They can also help safeguard assets from creditors or other third parties and offer more privacy than a will.

However, gifting assets into most types of trusts can trigger an immediate inheritance tax charge if the value exceeds the nil-rate band at the date of the gift (£325,000). Trusts can be useful for controlling how assets are used, but they come with complex tax rules - as such, it is important to take professional advice.

Things to consider when giving gifts

RELINQUISHING CONTROL

When you make a lifetime gift, you immediately lose control over the amount and cannot legally dictate how the recipient uses the money (except in some types of trusts where conditions apply). While they might say it’s for a house deposit, they could spend it on something else entirely, like a holiday. That’s why it’s important to trust the person you’re gifting to and be prepared to accept the consequences once the gift is made.

DON’T RETAIN A BENEFIT

It’s important to ensure that you do not retain any benefit from the asset after it has been given away — this is known as a “Gift with Reservation of Benefit (GROB)”. For example, giving away your home but continuing to live in it rent-free may result in the gift being ineffective for inheritance tax purposes. HMRC will treat the asset as still forming part of your estate, meaning the intended tax benefit is lost. To avoid this, any continued use of the gifted asset must be on a fully commercial basis (e.g. paying market rent), or the arrangement must fall within specific exceptions.

ENSURE THAT YOU HAVE ENOUGH MONEY

Before making significant gifts, it’s essential to consider your own long-term financial needs. Gifting too much too soon can leave you without sufficient resources for future care, lifestyle costs, or unexpected expenses. A well-balanced plan should provide for your own security as well as your estate planning goals.

INDIVIDUAL ALLOWANCES

Remember, all the allowances are for individuals, so both spouses can make gifts up to the yearly limits.

KEEPING TRACK OF GIFTS MADE

Do keep clear records of all gifts made, that your executors can access. This helps ensure accurate reporting and can help to prevent delays or disputes during estate administration (see more below).

Keeping track of your gifts

When making gifts, it’s useful to keep track of everything to assist the executors of your estate in due course.
There are different ways of recording gifts as follows:

• POTENTIALLY EXEMPT TRANSFERS (PETS): There are a couple of common ways to record a PET. The first way is to record this when making a bank transfer as a reference e.g. listing the reference as ‘Potentially Exempt Gift’. Alternatively, you can use a Deed of Gift - you can ask a solicitor to prepare this for you as a formal record, or you can write a DIY one.

• ANNUAL EXEMPTION & GIFTS MADE OUT OF SURPLUS INCOME: You can either declare these with your accountant as part of your annual tax returns and they will keep a record. They will also help you calculate what you can afford to give. If you don’t have an accountant, you either:
  • add ‘Annual exemption’ to your bank reference so it’s easier to track
  • keep a detailed record in a place that your executors can easily find (e.g. with your will)
  For gifts made out of surplus income, it’s advisable to keep a copy with your yearly P60.

• WEDDING GIFTS: As above, the best way to record this is via your bank reference if paying it directly to the couple who are getting married or entering a civil partnership. Alternatively, if paying it directly to a vendor, keep a record in a place that your executors can easily find it.

What to do if you find you need help?

Lifetime gifting is a useful tool in estate planning, offering the benefits of tax efficiency, flexibility, and control over your assets.
By understanding the rules and seeking expert advice, you can ensure that your estate plan meets your goals and provides for your loved ones effectively. If you’d like to better understand your options and discuss gifting as part of creating or updating your estate plan, then don’t hesitate to reach out to us to book an appointment.

Call: 020 4525 3605
Email: [email protected]