The myth of the £3,000 gift


David Watson

David Watson

Chartered Financial Planner


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.

An individual can provide gifts of £3,000 each tax year (6 April to 5 April) without these being adding to value of their estate on death. This is known as the annual exemption.

Whilst this is the case, it is a misconception that the limit is £3,000. 

Firstly, if the individual has not made any gifts the previous tax year they can backdate this 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 an IHT liability on the excess.

If the gift is under £325,000 the beneficiary would not pay Inheritance Tax (IHT) 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 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 2019-20 is £150,000.

The maximum available amount will go up yearly. For deaths in the following tax years it will be:

  • 2020 to 2021 - £175,000 

For later years, the threshold will go up with inflation based on the Consumer Prices Index (CPI).

By way of an example; a married couple with 2 children, who have a house worth £300,000, 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 (£300k from 6 April 2019) there would be no IHT payable even if they both died within 7 years.

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 members of team, who are based in 11 offices across Scotland, would be happy to help.