Giving assets away now or leaving them in your will

Giving an asset away now can take it, and all its future growth, out of your estate for Inheritance Tax if you survive seven years, but the gift is usually a disposal for Capital Gains Tax at today’s market value and you lose control of the asset. Leaving it in your will keeps control and wipes out any gain through the Capital Gains Tax uplift on death, but the full value at death counts towards your estate.

What is the basic trade off?

Issue	Lifetime gift to an individual	Legacy in your will
Inheritance Tax	Outside the estate if you live seven years; value fixed at the date of the gift	Taxed as part of the estate at its value at death
Capital Gains Tax	Disposal at market value now, unless an exemption or holdover relief applies	No disposal on death; beneficiary takes market value as base cost
Residence nil rate band	A home given away does not usually attract it, apart from the downsizing rules	Available if the home passes to direct descendants
Control and income	Gone, and keeping a benefit can undo the Inheritance Tax saving	Retained until death; the will can be changed

How does Inheritance Tax treat a lifetime gift?

A gift to another individual is a potentially exempt transfer. GOV.UK states that no tax is due on gifts if you live for seven years after making them, unless the gift is into a trust. If you die sooner, the gift is brought back into account. Three points shape the result:

• The gift uses the nil rate band first. Failed gifts are set against the £325,000 threshold before the estate. GOV.UK’s example has a £325,000 gift to a sister four years before death using the whole threshold, so the remaining £400,000 estate pays 40%, which is £160,000.
• Taper relief only cuts tax on the gift itself. It reduces the 40% rate on gifts made three to seven years before death, but only where gifts in those seven years exceed the threshold. A gift within the nil rate band gets no benefit from taper.
• The value is frozen. GOV.UK tells executors to use the approximate value of the gift at the time it was made, so growth after the gift is outside the estate.

Some gifts never enter the calculation. GOV.UK lists the £3,000 annual exemption, which can be carried forward for one tax year, gifts of up to £250 per person, wedding or civil partnership gifts of £5,000 to a child, £2,500 to a grandchild and £1,000 to anyone else, and regular gifts out of surplus income. See the annual exemption and small gifts and the seven year rule for detail.

A gift into most trusts is different. It is a chargeable lifetime transfer, taxed at 20% on the excess over the nil rate band when made if the trustees pay, according to HMRC’s trusts guidance, and it may need reporting on form IHT100.

How does Inheritance Tax treat a legacy?

Everything you own at death forms your estate. GOV.UK sets the standard rate at 40% on the part above the £325,000 threshold. Anything left to a spouse, civil partner or charity is exempt, and the rate falls to 36% on some assets if at least 10% of the net estate goes to charity.

The residence nil rate band is the main advantage of waiting. GOV.UK says the threshold can rise to £500,000 if you leave your home to children or grandchildren and the estate is worth less than £2 million, with the extra band tapered by £1 for every £2 above £2 million. It applies to estates on death on or after 6 April 2017. Someone who gave the home away or downsized on or after 8 July 2015 may still claim a downsizing addition, but an outright lifetime gift of the home does not in itself attract the band.

What about Capital Gains Tax?

Section 17 of the Taxation of Chargeable Gains Act 1992 treats a gift as a disposal at market value. The donor pays Capital Gains Tax on the gain even though no money changes hands. For 2026 to 2027 the rates are 18% and 24% depending on your income, and the annual exempt amount is £3,000. Gifts to a spouse, civil partner or charity do not usually trigger tax.

Death is the opposite. Section 62 says the assets of a deceased person are not treated as disposed of on death, and those who inherit them are treated as acquiring them at market value at the date of death. The gain built up during life is never taxed. See the CGT uplift on death.

Gift holdover relief can defer the gain on business assets, unlisted trading company shares and shares in a personal company. The donor and recipient claim jointly, and the recipient takes over the original cost, so the uplift is lost unless the recipient still holds the asset at their own death. See gift holdover relief.

What happens to control, and can I keep using the asset?

An outright gift is final. If you keep benefiting, GOV.UK treats it as a gift with reservation: it stays in your estate, and the seven year rule does not apply to it. Examples include giving your home to a relative but still living there, or giving away a painting that stays on your wall. To live in a home you have given away, you would need to pay the going market rent and your share of the bills, unless you gave only part and the new owners live there too. See gifts with reservation of benefit.

A trust can keep some control in the hands of trustees, but it brings the lifetime charge and its own periodic charges, as explained in chargeable lifetime transfers.

A worked comparison

Illustration only. Joan, a higher rate taxpayer whose estate is well above all her nil rate bands, owns a share portfolio worth £200,000 that cost £80,000. She has used her annual Inheritance Tax and Capital Gains Tax exemptions elsewhere.

• Gift to her son now. Gain £120,000 at 24% gives Capital Gains Tax of £28,800 payable now. If she lives seven years, the £200,000 and any growth are outside her estate, saving £80,000 at 40% on today’s value. If she dies within three years, the £200,000 comes back into account and, because her estate is above the thresholds, effectively bears 40%; the growth since the gift is still excluded, but the £28,800 has already been paid.
• Leave it in her will. No Capital Gains Tax during life or on death, and her son’s base cost becomes the value at death. The whole value at death, including growth, is taxed at 40%.

The gift wins if Joan is likely to survive seven years and the shares are expected to grow; the legacy wins if her life expectancy is short or the Capital Gains Tax cost is high relative to the likely saving.

Which assets suit which route?

• Cash carries no Capital Gains Tax, so it is the cleanest asset to give.
• Assets with large gains, such as long held shares or a second home, may cost more to give now than they save, unless holdover relief applies.
• Assets expected to grow favour an early gift, because the value is frozen at the date of the gift.
• The family home usually favours a legacy, because of the residence nil rate band and the reservation of benefit rules; see gifting property to children.

What mistakes come up most often?

• Forgetting that a lifetime gift is a Capital Gains Tax disposal at market value.
• Giving away the home and continuing to live in it rent free.
• Assuming taper relief reduces tax on every gift made three to seven years before death.
• Not recording what was given, to whom, its value and the date, which GOV.UK says executors will need.

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Related Accountapedia entries

• The inheritance tax nil rate band
• Do you pay tax on money you are gifted or inherit
• Taper relief on lifetime gifts
• How inheritance tax is calculated on an estate
• Gifts and market value for capital gains
• The residence nil rate band
• Gifts made by an attorney: rules and IHT

Sources

• GOV.UK: Inheritance tax
• GOV.UK: Valuing estate of someone who died
• GOV.UK: Trusts and inheritance tax
• GOV.UK: Check if you can get an additional inheritance tax threshold
• legislation.gov.uk: Act 1992 c. 12, section 17
• GOV.UK: Capital gains tax
• legislation.gov.uk: Act 1992 c. 12, section 62
• GOV.UK: Gift holdover relief

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.