Giving money to your children: the tax rules for lifetime gifts

Gifts that are exempt straight away

• Annual exemption: £3,000 in total each tax year. If you did not use it last year, you can use that year's £3,000 too.
• Small gifts: up to £250 to each person, where no other exemption has been used for that person.
• Wedding and civil partnership gifts: up to £5,000 to a child, £2,500 to a grandchild and £1,000 to anyone else.
• Gifts from surplus income: regular payments made out of income, not capital, that leave you with enough to maintain your usual standard of living. There is no upper limit.

The surplus income exemption is the most valuable and the most often lost, because executors have to prove it after your death. Keep a simple record each year of your income, your spending and the gifts made. Executors claim the exemption on form IHT403.

Larger gifts and the seven-year rule

A gift to an individual above the exemptions is a potentially exempt transfer. If you survive seven years, it is outside your estate. If you die within seven years, the gift uses up your nil-rate band first, and any tax on the gift itself is reduced by taper relief if you survived at least three years:

• 3 to 4 years: 32% instead of 40%
• 4 to 5 years: 24%
• 5 to 6 years: 16%
• 6 to 7 years: 8%

Taper relief only reduces tax on gifts above the nil-rate band. Gifts within it still reduce the band available to the rest of the estate for seven years.

Gifts with reservation

If you give something away but keep benefiting from it, the gift is ignored for inheritance tax and the asset stays in your estate. The common example is giving your home to your children and continuing to live in it without paying a full market rent and your share of the bills. The rule does not apply if you give away only part of the home and the new owners live there with you. A related income tax charge, the pre-owned assets charge, can apply to some arrangements that try to avoid this rule.

Capital gains tax on gifts

Cash gifts have no capital gains tax. A gift of shares, funds or property to anyone other than a spouse or civil partner is treated as a sale at market value, so capital gains tax can be due on the increase in value. Using the £3,000 annual exempt amount each year can reduce this. A gift of your own main home is usually covered by private residence relief. A loss on a gift to a child can only be set against later gains on gifts to the same child.

Gifts to children under 18

If a parent gives money to their own child under 18 and it produces more than £100 of income a year, the whole of that income is taxed on the parent. The rule does not apply to gifts from grandparents or other relatives, or to money held in a Junior ISA. Our guide to saving for children covers the options.

Helping with a house deposit

Mortgage lenders usually ask for a letter confirming that a gifted deposit is a gift with no expectation of repayment. If you would prefer the money to come back to you, or to stay in the family if your child's relationship ends, a loan secured by a legal charge or a declaration of trust may suit better. A loan stays in your estate for inheritance tax. Our conveyancing team can document either option.

The value of investments and the income from them can fall as well as rise, and you may get back less than you invest. Tax treatment depends on your circumstances and may change.

This article is general information, not advice. Tax, financial and legal rules change and their effect depends on your circumstances. Check the current position and take professional advice before acting. Last reviewed 26 October 2026. Totus One Limited (company no. 16855798).

Vince De Stefano

Head of Financial Services

An independent financial planner advising individuals and families on pensions, investments, protection and inheritance.