What is a Lifetime Gift in the UK?
If you are considering giving your child money to help them purchase their first home or making a gift to reduce the size of your estate, you and your beneficiary need to understand the tax rules for lifetime gifts.
Contact Evolve Family Law for expert private client and Will advice.
What is a lifetime gift in the UK?
A lifetime gift is a gift made without conditions by a donor during their lifetime to a beneficiary. It is distinguished from a gift in a Will as a Will legacy only takes effect after the Will maker or testator’s death.
Limits on lifetime gifts in the UK
There are no limits on the amount of money you can give away, and there are no restrictions on who you can give your cash or assets to. However, depending on the size of the gift, there may be potential tax implications.
Lifetime gifts become fully exempt from inheritance tax if the donor survives seven years after making the gift. However, some exemptions to the seven-year rule enable a donor to leave a gift without the risk that it will attract IHT liability if the donor passes away within seven years of making the gift.
Tax and UK lifetime gifts
Although the definition of a lifetime gift in the UK is broad, the inheritance tax rules on lifetime gifting are complex. Many feared tax rule changes in the 2025 Budget and delayed estate planning. However, tax rule changes were not announced, leading to an increase in inquiries about estate planning.
Lifetime gifting UK and the annual £3,000 exemption
Current inheritance tax rules allow a donor to give £3,000 a year in gifts exempt from inheritance tax. The gifts can be made to anyone; the donor does not need to be related to the beneficiary.
Many people want to give their children or other family members more than £3,000. For example, for a deposit on a house purchase or to help pay for home renovations. Gifts of over £3,000 may fall within the seven-year inheritance tax rule unless the gift is within one of the exemptions.
Lifetime gifting UK and the seven-year rule
If a donor wants to give more than £3,000 away in a year, they can do so. However, unless the gift falls within one of HMRC’s recognised exceptions, it may be subject to inheritance tax if the donor dies within seven years of making the gift.
Whether inheritance tax (IHT) will be payable on the gift depends on the size of the donor’s estate, the availability of the inheritance tax nil rate band for lifetime gifts and the residence nil rate band. The IHT amount on the gift is tapered based on how long the donor survives after making the gift, with no IHT payable if the donor survives for seven years.
The seven-year rule should not deter donors from making lifetime gifts or beneficiaries from accepting them, but specialist estate planning legal advice is needed so the donor and beneficiary understand the taper relief IHT rules and the family law implications of the gift. For example, a family may want to combine estate planning and family law advice to protect the gift by signing a relationship agreement.
Lifetime gifting and the exemptions to the seven-year rule
There are six main exemptions to the seven-year IHT rule. These exemptions allow a donor to give away over £3,000 per year, in the knowledge that IHT should not be payable on their gift in the future. The exemptions are:
- Small gift exemption.
- Money paid in maintenance.
- Marriage and civil partnership gifts.
- Gifts to a husband, wife or civil partner.
- Gifts out of normal income.
- Charitable or political gifts.
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Lifetime gifting UK and the small gifts exemption
Donors can give gifts of up to £250 to as many people as they like. However, the small gift exemption cannot be combined with a £3,000 gift to one individual in the same tax year.
Lifetime gifting UK and family maintenance
The family maintenance exemption allows donors to make gifts to:
- A spouse or civil partner’s maintenance, or
- Children under the age of 18 for maintenance, training or education.
If the gifts exceed the £3,000 cap, the gifts remain exempt from the seven-year rule if they fall within the definition of family maintenance.
Lifetime gifting UK, marriage, and civil partnership
Under current IHT rules, some relatives can make lifetime gifts in contemplation of a relative or friend’s marriage or civil partnership. The amount depends on the relationship. The rules are:
- Parents can give up to £5,000.
- Grandparents can give up to £2,500.
- Anyone else can give up to £1,000.
Lifetime gifting to a spouse or civil partner
Gifts to a spouse or civil partner are usually free of inheritance tax. The relationship rule does not apply if the donor is in an unmarried or cohabiting relationship with the beneficiary.
If one partner is UK domiciled and the other is not, then complicated inheritance tax rules and exemptions apply. Domicile is a tricky legal concept, so if there are any questions about your domicile or that of your beneficiary, it’s best to seek professional advice.
Lifetime gifting UK out of normal expenditure
The normal expenditure exemption allows a donor to make regular gifts from their surplus income. Gifts from surplus income can exceed £3,000 per year and are inheritance tax-free on death, even if the donor dies within seven years of transferring the gift. Parents and grandparents can use this tax-efficient method to pay or contribute toward private school fees, or to provide regular financial support to family members.
Estate planning solicitors recommend that professional advice be taken on the definition of normal expenditure and income to avoid future difficulties with proving that the gifts were made from income and as part of the donor’s normal expenditure.
Income can include various income sources. However, income does not include capital investments transferred into a current bank account or the sale proceeds of property.
Lifetime gifting, charity and other exceptions
Another major exception to lifetime gifting and potential payment of IHT is lifetime gifts made to:
- Charities.
- Gifts to the nation for national purposes.
- Qualifying political parties.
Lifetime gifting UK legal advice
Lifetime gifting is a lovely thing to do to help friends and family, but it should be carried out after taking estate planning advice so you and your beneficiaries understand the potential inheritance tax implications.
The estate planning solicitors at Evolve Family Law provide lifetime gifting advice and can help you make or update your Will or Lasting Power of Attorney.
Contact Evolve Family Law for expert private client and Will advice.
