Metis AM
Making financial gifts can be a powerful tool when it comes to mitigating a future Inheritance Tax (IHT) bill.
When done strategically, gifting money and assets over time can reduce the value of your estate, resulting in more of your wealth being passed to your loved ones – and less to HMRC.
Strategic gifting typically involves planning how much you will give away, who you are giving it to, and when you want to give it, to make the most of tax-efficient allowances.
For couples, determining who gives the gifts can be just as important.
Read on to explore why tax-efficient gifting isn’t just about what you give, but who gives it.
Gifting can reduce the size of your estate and Inheritance Tax bill
Typically, your estate will only be subject to IHT if the value of your assets and cash exceeds the nil-rate bands. These bands represent the amount you can pass on tax-efficiently after you die.
In a nutshell, here is how the nil-rate bands function as of the 2026/27 tax year:
- The main nil-rate band is £325,000 and applies to everyone.
- You may also have a residence nil-rate band of £175,000 if you leave a primary residence to a direct descendant, bringing your total tax-efficient allowance to £500,000.
- If your estate is worth £2 million or more, your residence nil-rate band could be tapered down and is lost completely if the estate exceeds £2.35 million.
- Spouses and civil partners are exempt from IHT, so the nil-rate bands are only relevant if you leave money or assets to non-spousal beneficiaries.
- If you’re married or in a civil partnership, your unused nil-rate bands can be claimed by the surviving spouse.
- So, as a couple, you could pass on up to £1 million before being liable for IHT.
- The portion of your estate exceeding your nil-rate bands is generally taxed at 40%.
Gifting wealth over the course of your lifetime can reduce the taxable portion of your estate, leaving more of your assets in the hands of your loved ones.
However, in some cases, gifts may still be counted in your estate after you die, resulting in a higher IHT bill. Donations to charity are immediately exempt from IHT. If you leave 10% or more of your net estate to charity when you die, your tax rate may reduce to 36%.
By planning your gifts as a couple, you could help remove more assets from your estate.
The value of some gifts may be subject to Inheritance Tax if you die within seven years
Not all gifts will immediately reduce the value of your estate for IHT purposes.
If you die within seven years of giving a financial gift, the value may still be considered part of your estate when it comes to calculating IHT – unless it qualifies for an exemption (more on this later) or is a charitable donation.
It may therefore be worth considering life expectancies when determining whether a gift should come from you or your partner. It’s not a pleasant thought, but it could have a huge impact on your estate’s IHT bill.
If, for whatever reason, you believe your partner is more likely to outlive the seven-year period, it could be wise to have the gift come from them to reduce the likelihood of it being exposed to IHT.
Each individual has their own tax-free financial gifting allowances
Some gifts will be instantly deducted from your estate’s net value. As of 2026/27, your gift may be immediately exempt from IHT if:
- You gifted £3,000 or less in the tax year (annual exemption)
- The gift was for a wedding or civil partnership and didn’t exceed £5,000 for a child, £2,500 for a grandchild or great-grandchild, or £1,000 for anyone else (wedding gift allowance)
- You gifted less than £250 per person and didn’t use any other allowance on the same individual (small gift allowance)
- The gifts were taken from your regular income, subject to strict criteria (normal expenditure out of income).
You can carry forward any unused annual exemption from the previous tax year, provided you have used your full allowance for the current tax year.
Each individual has their own set of allowances. If you’re in a couple, making the most of both your allowances can significantly reduce your estate’s value and IHT liability.
For example, if both partners make full use of the annual exemption, a total of £42,000 could leave the estate over the seven-year period.
So, if you’re likely to exceed your own gifting allowances, it could be worth teaming up with your partner to make your gifts more tax-efficient.
Gifts from surplus income may be entirely exempt from Inheritance Tax
As mentioned above, regular gifts made from normal expenditure may immediately be deducted from your estate for IHT purposes.
To qualify for this exemption, your gift must meet the following criteria:
- It was made as part of normal expenditure
- It was made out of income (not savings or capital), which is defined by specific criteria
- You are left with sufficient income to maintain your usual standard of living.
Provided you meet these criteria, there’s no limit to how much you can give tax-free. You might make regular payments to support an elderly relative, pay bills for your child, or contribute to a savings account for someone under 18.
If you’re a high earner with surplus income, making payments from this, rather than from a savings account, may make your regular gifts exempt from IHT.
You can usually transfer unlimited assets to your spouse or civil partner tax-free
Generally, the spousal exemption allows married or civilly partnered couples to gift assets to one another without the value being at risk of an IHT bill further down the line.
As such, if you’re planning to gift assets held in your name but determine that your partner is the more tax-efficient gift giver, you may consider transferring them to your partner first. If you do transfer assets to your spouse or vice versa, ensure your will is up to date and in line with your wishes.
Get in touch
Strategically planning your gifts to mitigate an IHT bill can be complex. The most tax-efficient strategy will depend on numerous personal factors, with considerations for how much you gift, when, and how, as well as who gives the gift.
At Metis Wealth, our financial planners can help you define a gifting plan tailored to your family’s needs and financial circumstances. Through comprehensive estate planning, we can help you mitigate a future IHT bill to leave more of your wealth to your chosen beneficiaries.
Email enquiries@metiswealth.co.uk or call 0345 450 5670 today to find out what we can do for you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning or tax planning.
Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.
Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.