The end of the tax year is fast approaching, which means there is only a small amount of time left to utilise both your 2025/26 and 2024/25 annual exemption for gifting.

Each tax year, an individual may give away up to a total of £3,000 without that gift being taken into account for Inheritance Tax purposes. This is known as the annual exemption.

You can also carry forward the unused allowance from the previous year. As such, if any part of the 2024/25 exemption is unused, it may be combined with the 2025/26 exemption, enabling gifts of up to £6,000 to be made before 5 April 2026 without affecting the donor’s estate for Inheritance Tax purposes.

The exemption for the current tax year must be used first before any unused exemption from the previous tax year is applied. Therefore, if the 2024/25 exemption is not used by 5 April 2026, it will be lost at the start of the 2026/27 tax year.

What If I Want to Gift More Than £3,000?

Gifts of any amount can be made. If you have not used your annual allowance, then this will reduce the total amount of the chargeable gift.

Provided the donor survives for seven years from the date of the gift and does not retain any benefit in the gifted asset, the gift will generally fall outside the donor’s estate for Inheritance Tax purposes.

If the donor does not survive the gift by seven years, the value of the gift may reduce the available nil-rate band. The nil-rate band is currently £325,000, although this is transferable between spouses. The nil-rate band has remained at £325,000 since 2009 and is currently frozen until 5 April 2030.

If the value of the gifts made in the seven years before death is over the available nil rate band, Inheritance Tax will become chargeable. Inheritance Tax is generally charged at 40% on the value of an estate above the available threshold. Depending on when a gift was made, the Inheritance Tax may be reduced under what is known as ‘taper relief’.

It is important that proper records are retained in relation to all lifetime gifts. Details should be stored with the donor’s Will and other key estate planning documentation so that Executors are able to identify the nature and date of the gifts when administering the estate.

Small Gifts and Marriage Gifts

Small gifts of up to £250 per person per tax year may also be made to as many individuals as desired, provided the annual exemption has not been used on the same person.

In addition, gifts made in consideration of marriage or civil partnership are exempt up to the following amounts:

• £5,000 to a child
• £2,500 to a grandchild or great-grandchild
• £1,000 to any other person

These gifts can be an effective means of passing on wealth without creating an Inheritance Tax charge.

Other Allowances and Exemptions

Further Inheritance Tax exemptions and reliefs may also be available depending on the nature of the assets in the estate and the identity of the beneficiaries. Careful use of lifetime gifting exemptions, alongside wider estate planning measures, can have a significant impact on the Inheritance Tax position of an estate.

If you would like advice on Inheritance Tax planning or gifting, our Wills, Trusts and Probate team would be happy to assist.

Get in contact with us today by

Email: [email protected]

Phone: 01256 460830

Article by McBriggs Antwi-Boasiako