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Exempt beneficiaries

You can give things away to certain people and organisations without having to pay any Inheritance Tax. These gifts, which are exempt whether you make them during your lifetime or in your will, include gifts to:

But, bear in mind that gifts to your unmarried partner or a partner with whom you've not formed a civil partnership aren't exempt.

• More about Inheritance Tax
• More about civil partnerships Opens new window

Exempt gifts

Some gifts are exempt from Inheritance Tax because of the type of gift or the reason for making it. These include:

Wedding gifts/civil partnership ceremony gifts

Wedding or civil partnership ceremony gifts (to either of the couple) are exempt from Inheritance Tax up to certain amounts:

You have to make the gift on or shortly before the date of the wedding or civil partnership ceremony. If it is called off and you still make the gift, this exemption won't apply.

Small gifts

You can make small gifts, up to the value of £250, to as many people as you like in any one tax year (6 April to the following 5 April) without them being liable for Inheritance Tax.

But you can't give a larger sum: £500, for example, and claim exemption for the first £250. And you can't use this exemption with any other exemption when giving to the same person. In other words, you can't combine a 'small gifts exemption' with a 'wedding/civil partnership ceremony gift exemption' and give one of your children £5,250 when they get married or form a civil partnership.

Annual exemption

You can give away £3,000 in each tax year without paying Inheritance Tax. You can carry forward all or any part of the £3,000 exemption you don't use to the next year but no further. This means you could give away up to £6,000 in any one year if you hadn't used any of your exemption from the year before.

You can't use your 'annual exemption' and your 'small gifts exemption' together to give someone £3,250. But you can use your ' annual exemption' with any other exemption, such as the ' wedding/civil partnership ceremony gift exemption'. So, if one of your children marries or forms a civil partnership you can give them £5,000 under the wedding/civil partnership gift exemption and £3,000 under the annual exemption - a total of £8,000.

Gifts that are part of your normal expenditure

Any gifts you make out of your after-tax income (but not your capital) are exempt from Inheritance Tax if they're part of your regular expenditure. This includes:

It's a good idea to keep a record of your after-tax income and your normal expenditure, including gifts you make regularly. This will show that the gifts are regular and that you have enough income to cover them and your usual day-to-day expenditure without having to draw on your capital.

Maintenance gifts

You can also make Inheritance Tax-free maintenance payments to:

'Potentially exempt transfers'

If you, as an individual, make a gift in any of the situations described below and it isn't covered by one of the exemptions already described, it is known as a 'potentially exempt transfer' (PET). A PET is only free of Inheritance Tax if you live for seven years after you make the gift.

Gifts that count as a PET are gifts that you, as an individual, make to:

Example: a wife is the beneficiary of assets in an IIP trust under her husband's will and the minor child a beneficiary of income, but the wife decides to give up any interest in the assets and these also become held in trust for the bereaved minor child.

Changes introduced by the Finance Act 2006 mean that lifetime transfers into other types of trust since 22 March 2006 no longer qualify as PETs.

• Inheritance Tax on transfers into trusts and companies

Only 'outright gifts' count as PETs

If you make a gift with strings attached (technically known as a 'gift with reservation of benefit'), it will still count as part of your estate, no matter how long you live after making it. For example, if you give your house to your children and carry on living there without paying them a full commercial rent, the value of your house will still be liable for Inheritance Tax.

In some circumstances a gift with strings attached might give rise to an Income Tax charge on the donor based on the value of the benefit they retain. In this case the donor can choose whether to pay the Income Tax or have the gift treated as a gift with reservation.

More useful links

• Information on Inheritance Tax and lifetime gifts Opens new window
• Passing money to your children and grandchildren
• Tax efficient gifts of money charity
• Financial reasons to make a will
• Managing money - more topics