Gifting in the UK: rules, tax and allowances

Sharing money can feel like passing on a little sunshine, whether it’s helping a loved one, supporting a cause close to your heart, or simply saying “thank you.” But before you start, it’s important to understand the rules that keep your generosity tax-efficient.

• Gifting to your spouse or civil partner - if you’re married or in a civil partnership, you can give as much as you like to your spouse without paying Inheritance Tax, provided you both live in the UK permanently. These transfers are completely exempt.
• Gifting to family members and children - beyond what falls under the annual and small gift exemptions (as above), any extra cash gifts to family or children generally fall under the category of potentially exempt transfers. This means they’re free from Inheritance Tax only if you live for seven years after making the gift. If you don’t, the amount could be added back into your estate and taxed.

For example, let’s say you give your child £10,000 as a lump sum. Because this amount is above the annual exemption, it doesn’t qualify for the usual tax-free allowances. Instead, it’s treated as a potentially exempt transfer. This means it will only stay tax-free if you live for seven years after making the gift. If you pass away within that period, the gift could be subject to Inheritance Tax, with the rate reducing the longer you live after giving it. 

So, while you can give more than the standard limits, it’s worth planning ahead to avoid surprises later.

• Gifting to charities and political parties - if you’re donating to a UK-registered charity or a qualifying political party, there’s no Inheritance Tax to worry about. These gifts are fully exempt, so every pound you give goes straight to the cause you care about.
• Sharing cash directly from your salary - Payroll Giving allows you to donate straight from your gross salary before tax is deducted. This approach makes your contributions more cost-effective because you benefit from immediate tax relief. For example, if you pledge £10 and pay basic-rate tax, only £8 is taken from your net pay, while the charity receives the full £10. It’s one of the most efficient ways to support charities on a regular basis.

If you receive a cash gift in the UK, there is no Income Tax or Capital Gains Tax (CGT) on the gift itself. You don’t need to report it as income, and there is no maximum amount that triggers an immediate tax bill. However, there are a few important points to keep in mind.

You won’t pay tax when you receive the gift, but it could matter for Inheritance Tax if the person who gave it to you dies within seven years of making it. In that case, the gift may be added back into their estate and taxed if the whole estate exceeds the Inheritance Tax threshold. The responsibility for paying any tax usually falls on the estate, but large gifts can affect what you ultimately inherit.

Although the gift itself is tax-free, but if you invest the money and earn interest, dividends, or other returns, those profits are taxable under normal Income Tax rules. Similarly, if the gift is an asset like property or shares and you later sell it for a gain, Capital Gains Tax may apply.

It’s also important to understand the difference between gifts and income. A genuine gift is given freely, with no expectation of work or services in return. If the payment’s linked to employment or business activity, like a bonus or incentive, HMRC treats it as income. This means, it’ll be subject to Income Tax and possibly National Insurance.

Do I need to declare cash gifts to the HMRC in the UK?

In most cases, you don’t need to tell HMRC about cash gifts you receive. Gifts of money aren’t treated as income, so there’s no Income Tax or Capital Gains Tax to pay, and there’s no requirement to report them as part of your annual tax return.

However, there are situations where records matter. If the person giving the gift dies within seven years, the gift may be considered when calculating Inheritance Tax on their estate. While the responsibility for paying any tax usually falls on the estate, HMRC recommends keeping clear records of significant gifts, including dates and amounts, to avoid complications later.

The only time a gift might need reporting as income is if it’s linked to work or services provided. For example, a bonus or payment from an employer isn’t a gift in HMRC’s eyes. Rather, it’s taxable earnings.

Gifting property or other valuable assets can be more complex than giving cash, mainly because it often triggers additional tax and legal considerations. Here’s what you need to know before making that decision.

What do I need to know about gifting property or assets?

When you give away property, HMRC treats it as if you sold it for its current market value, even if no money changes hands. That means you might have to pay Capital Gains Tax on any increase in value since you first owned it. The only exceptions are gifts to your spouse or civil partner or to a UK-registered charity, which are exempt from CGT. If whoever you give it to later sells the property, their gain will be calculated against the property's value when you bought it, so keeping good records is important.

You can use our Capital Gains Tax calculator to check if you’ll need to pay CGT.

There are legal steps involved when gifting property. You’ll need to complete a TR1 form to transfer ownership and an AP1 form to update the Land Registry. The TR1 form acts as the legal deed for the transfer. There’s no need for a separate “deed of gift,” even though the transfer is often referred to that way, because no money changes hands. ^{Footnote [1]} It’s a good idea to get help from a solicitor or conveyancer to make sure everything’s done properly and your rights are protected.

Will I have to pay Inheritance Tax?

Inheritance Tax (IHT) is usually paid on the estate of someone who has died, but gifts made during your lifetime can also be included in the calculation. The standard IHT threshold (known as the nil-rate band) is £325,000. If your estate is worth less than this, there’s no tax to pay. If you leave your home to your children or grandchildren, you may also qualify for the residence nil-rate band, which adds another £175,000. Combined, this means some estates can pass on up to £500,000 tax-free, and if you’re married or in a civil partnership, any unused allowance can be transferred to your partner, potentially doubling the tax-free amount to £1 million. And it's worth noting that the residence nil rate band is reduced by £1 for every £2 an estate exceeds.

And remember, gifting property or assets to your spouse or civil partner, or to a UK-registered charity, is free from IHT. Gifts to political parties also qualify for exemption. 

Gifts with reservation of benefit

A ‘gift with reservation of benefit’ happens when you give something away (usually property), but keep some benefit from it. For example, if you gift your home to your children but continue living there rent-free, that’s a gift with reservation. Even if you survive seven years after making the gift, the property will still be treated as part of your estate when you die because you never gave up the benefit.

HMRC looks at whether the person receiving the gift has full possession and enjoyment of it, and whether you’ve been excluded from any benefit. If you’re not excluded (for instance, you keep living in the property or enjoy perks linked to the gift) the rules apply. This means the property may be added back into your estate for Inheritance Tax purposes, and tax could be calculated as if you still owned it.

There are ways to prevent triggering these rules. The simplest is to make sure the person you give the property to genuinely takes over and you stop benefiting from it. If you want to stay in the property, you’d need to pay a full market rent to the new owner. That rent must be regular and realistic, not a token amount. Alternatively, you could move out completely or structure the gift differently with professional advice.

Make your gifts work for you and your family

Planning ahead is essential because a ‘gift with reservation of benefit’ can lead to unexpected tax bills for your estate. If you have pension or investment savings of £300,000 or more, Aviva Financial Advice could be the right option for you. Our advisers can help you make the most of your plans, ensuring your gifts are structured in a way that works for you and your family. With the right guidance, you can feel more confident that everything is set up smoothly, reducing stress and helping your loved ones benefit fully from your generosity.