This blog was updated on 30 July 2024.

Gold, frankincense and myrrh may have been the gift of choice over two thousand years ago, but in current times, when it comes to birthday or christmas gifts, money seems to the favoured option. 

We are often asked, ‘how much can I gift a family member?'. Many believe £3,000 is the maximum gift that they can make, however this is not the case. 

You can provide gifts of £3,000 each tax year (6 April to 5 April) years before your death, without these being adding to value of your estate on death. This is known as the annual exemption. Whilst this is the case, it is a misconception that the limit is a £3,000 gift allowance.  

Firstly, if the individual has not made any gifts in the previous tax year, they can backdate this unused annual exemption forward for one tax year. Furthermore, an individual can make gifts larger than £3,000, however if they die within 7 years of making the gift and leave an estate worth more than the Nil Rate Band (NRB), plus any additional threshold available, the excess gift will use up some of the NRB; thus effectively resulting in Inheritance Tax to pay on the excess (IHT). 

If the individual has not made any gifts the previous tax year they can backdate this for one tax year. If the gift is under £325,000, the beneficiary would not have to pay inheritance tax on the gift since this will use up the NRB.

The IHT rules have changed in recent years so if an individual dies on or after 6 April 2017 and their estate is above the basic IHT threshold; the estate may be exempt from inheritance tax and entitled to an additional threshold before any IHT becomes due. This is the so-called Residence Nil Rate Band (RNRB). This tax-free allowance for 2021-22 is £175,000. 

By way of an example; a married couple with 2 children, who have a house worth £350,000, they have cash worth £250,000 and investments worth £350,000. They could make a gift to each of their children of £100,000, and assuming their investments and property don't grow beyond the NRB  (joint £650k), and RNRB (£350k from 6 April 2021) there would be no IHT payable even if they both died within 7 years.

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As with many financial matters’, situations can be more complicated depending on individual circumstances. If you are looking for advice in relation to Inheritance Tax, please don't hesitate to get in touch with a member of our Wealth team.