• You can gift your children as much money as you like, but whether it will be free from Inheritance Tax depends on how much you gift, when you give it and how long you live afterwards.
• Everyone in the UK has a £3,000 annual gifting exemption, alongside other allowances for things like small gifts, weddings and regular gifts made from surplus income.
• If you die within seven years of making a bigger gift, it could be liable for Inheritance Tax. If you’re having trouble paying IHT, Provira’s Estate Advance can help.

If you have built up savings, property or other assets throughout your life, it is only natural to want as much of that money as possible to go to the people you love.

One way of doing that is to give some of it away while you are still here.

Gifting money to your children can reduce the value of your estate and, in turn, reduce the amount of Inheritance Tax that needs to be paid after you die.

But there are rules around how gifting works. You can’t just transfer most of what’s in your bank account to your children and assume it will automatically be exempt from Inheritance Tax.

The good news is that there are a few allowances you can use, and with some forward planning, gifting can be a great way to pass more of your wealth on during your lifetime.

If your loved ones find themselves in a situation where Inheritance Tax is due, but the estate does not have the cash to pay it, Provira’s Estate Advance can help. We offer access to up to 50% of the net value of the estate within days in order to pay Inheritance Tax and other estate expenses.

Get in touch to find out more.

Is gifting money to my children a good way to avoid Inheritance Tax?

Yes, gifting money to your children can help reduce Inheritance Tax, but it depends on the type of gift you make and when you make it.

Some gifts are immediately exempt from Inheritance Tax, others only become exempt if you live for seven years after making them.

This means there is an important difference between giving money away and that money sitting outside of your estate for Inheritance Tax purposes.

You are allowed to give your child £50,000, for example, there is no rule stopping you.

But if that £50,000 isn’t covered by one of your exemptions and you die a year later, HMRC may still take the money into account when working out how much Inheritance Tax is due on your estate.

How much money can I gift my children tax-free?

Everyone has an annual gifting allowance of £3,000 per tax year. That means you can give away £3,000 without it being added to the value of your estate for Inheritance Tax purposes.

One important thing to remember is that the £3,000 allowance applies to you, not to each child.

So, if you have three children, you don’t automatically get to give away £9,000 a year under this exemption. You could split it equally, gift one the majority share or split the allowance between two. It’s completely up to you.

If you didn’t use your £3,000 allowance during the previous tax year, you can also carry it forward for one year.

Can I gift more than £3,000 a year?

Yes, you can. And this is where the gifting rules are sometimes confusing.

The £3,000 allowance isn’t a limit on how much money you’re allowed to give away, it’s a guide on how much money is automatically Inheritance Tax free.

If you want to give your daughter £30,000 towards a house deposit, for example, you can. If you want to give your son £100,000, you can do that too.

The key thing to know is that anything above your exemptions could be taken into account for Inheritance Tax over the next seven years.

This is because you need to live for seven years after gifting the money in order for it to fall outside your estate for Inheritance Tax purposes.

This is known as the seven-year rule.

How does the seven-year rule work?

The seven year rule states that if you survive for at least seven years after making a gift, it will sit outside of your estate for Inheritance Tax purposes.

If you die within seven years, however, the gift may be liable for Inheritance Tax.

For example: Imagine you give your son £100,000 to help him buy his first house. You then go on to live for another eight years.

That £100,000 would fall outside your estate for Inheritance Tax purposes.

But if you died two years after making the gift, it could still be included when your executors calculate the Inheritance Tax due on your estate.

That doesn’t necessarily mean your son would suddenly owe 40% of the £100,000. How much tax is actually due will depend on the value of your gifts, your available tax-free allowances and the rest of your estate. Taper relief also applies if you die more than 3 years after making the gift.

What is taper relief?

Taper relief is a scale that reduces the amount of Inheritance Tax owed on gifts if you pass away between three and seven years after making the gift. Every year, the amount of Inheritance Tax due on the gift decreases. 

The rates are currently:

There is an important catch here. Taper relief doesn’t mean Inheritance Tax needs to be paid on every gift you make. First, HMRC will take into account any tax-free gifting allowances you still have. If the gift is above the allowance and you die within 7 years, then taper relief applies on the remaining amount.

Are there other ways to gift money without paying Inheritance Tax?

Yes. Your £3,000 annual exemption is only one of the gifting allowances available. You can also take advantage of:

Small gifts

You can gift up to £250 per person per tax year to as many people as you like.

However, you can’t use this allowance for somebody who has already benefited from another gifting allowance from you that year.

Wedding gifts

If one of your children is getting married or entering a civil partnership, you can gift them up to £5,000 using the wedding gift exemption.

You can also give:

• £2,500 to a grandchild or great-grandchild
• £1,000 to anybody else

Gifts to your spouse or civil partner

Gifts between spouses and civil partners are generally exempt from Inheritance Tax.

Gifts to charity

Gifts to qualifying charities are also generally free from Inheritance Tax.

And if you leave at least 10% of your net estate to charity when you die, the Inheritance Tax rate charged on the taxable part of your estate may fall from 40% to 36%.

Can I regularly give money to my children from my income?

Yes, if you earn more than you need to maintain your normal lifestyle, you may be able to make regular gifts from your surplus income without them being caught by the seven-year rule.

There isn’t a set £3,000 limit for this exemption.

Instead, the important thing is that the gifts:

• Are made regularly
• Come from your normal income
• Don’t leave you unable to maintain your normal standard of living

Imagine, for example, that you receive £6,000 a month from your salary, pension and investments but normally spend around £4,000.

You decide to give your children £500 each every month from the money you have left over.

If you can show that the payments are part of your normal spending, those gifts could potentially fall outside your estate for Inheritance Tax purposes.

Is gifting money a good way to reduce Inheritance Tax?

For some families, absolutely. If you have more money than you need yourself, gifting gives you the chance to help your children during your lifetime rather than leaving everything until after you die.

And if those gifts also reduce a future Inheritance Tax bill, that’s another benefit.

But don’t give money away just because you’re scared of Inheritance Tax. You need to be comfortable that you will still have enough money for your own future and understand what happens once that money is no longer yours.

What happens if there is still Inheritance Tax to pay on gifts when I die?

Even with good planning, some estates will still have an Inheritance Tax bill. And this is where executors can run into a very common problem.

Imagine someone dies leaving a £900,000 house and £20,000 in their bank account.

There is plenty of value in the estate, there just isn’t necessarily enough cash to cover all bills and taxes.

The executor may have an Inheritance Tax bill to deal with before they can get probate, but they aren’t allowed to just sell the £900,000 house immediately to raise the money.

This is where Provira can help.

Provira’s Estate Advance allows executors to access up to 50% of the net value of the estate within days, giving them the money they need to pay Inheritance Tax and other estate expenses.

There are no personal guarantees, no credit checks and no monthly repayments.

Get in touch to apply today.

How Provira can help if an estate can’t pay Inheritance Tax

Inheritance Tax planning can help reduce an Inheritance Tax bill, but nobody can predict exactly what their estate will look like years from now.

Property values change, tax rules change, personal circumstances change.

And sometimes, an executor may find themselves responsible for an estate that is worth a lot of money on paper but doesn’t have the cash available to pay HMRC.

That is exactly the problem Provira’s Estate Advance is designed to solve.

Through Provira, executors can access up to 50% of the net value of the estate, often within days, without putting their own house, savings or credit history on the line.

With Provira, there are:

• No personal guarantees
• No credit checks
• No monthly repayments
• No early repayment fees
• Simple interest rather than compound interest

If you’re administering an estate with an Inheritance Tax bill but the money to pay it is still tied up in property or other assets, get in touch with Provira today.

Our compassionate team can talk you through the options, explain exactly what an Estate Advance would cost and help you decide whether it is right for the estate.