Each person can give away £3,000 a year free of Inheritance Tax under the annual exemption, and any part left unused can be carried forward for one tax year only. Separately, gifts of up to £250 per recipient per tax year are exempt, and a wedding or civil partnership gift is exempt up to £5,000, £2,500 or £1,000 depending on how the giver is related to the couple.

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What is the annual exemption?

Section 19 of the Inheritance Tax Act 1984 (IHTA 1984) makes lifetime transfers of value exempt to the extent that they do not exceed £3,000 in any year, and for this purpose a year runs to 5 April, so it follows the income tax year. The £3,000 is a total for the giver, not a limit per recipient: you can give £3,000 to one person or split it between several.

The exemption is personal. A married couple or civil partners each have their own £3,000, so together they can give £6,000 a year from their combined allowances. It applies to lifetime gifts by individuals and to the lifetime ending of an interest in possession in a trust (IHTM14141). It does not apply to anything left in a will, because the estate on death is taxed separately.

Where a gift is bigger than the exemption available, the exemption covers part of it and only the excess is a potentially exempt transfer or a chargeable transfer. Most gifts to individuals are potentially exempt and only become taxable if the giver dies within seven years, which is covered in more detail on our page on gifting property to children.

How does carrying the exemption forward work?

Under section 19(2), if your gifts in a year fall short of £3,000, the shortfall is added to the exemption for the next year only. HMRC’s manual at IHTM14144 sets the order of use:

  1. Use the current year’s £3,000 first.
  2. Then use any unused part of the previous year’s exemption.
  3. Anything unused from earlier years is lost.

The ordering is what catches people out. Because the current year is used first, unused exemption brought forward survives only if your gifts in the new year are more than £3,000. If you give £2,000 this year, you use £2,000 of this year’s exemption, carry £1,000 into next year, and anything you brought into this year is lost. The maximum annual exemption in any one year is therefore £6,000, and only if you gave nothing the year before.

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Which gift gets the exemption when there are several?

Section 19(3) attributes any excess over the exemption to later rather than earlier transfers, so the exemption is set against the earliest gifts in the tax year first. Gifts made on the same day share it in proportion to their values (IHTM14143).

There is an important twist for potentially exempt transfers. Section 19(3A) says a potentially exempt transfer is left out of account at first. Only if the giver dies within seven years, so that it becomes chargeable, is it brought back in, and then it is treated as made after any immediately chargeable transfers in the same year, such as a gift into a discretionary trust. In practice the exemption goes against the trust gift before the gifts to individuals, whatever the dates.

Where the gift qualifies for business relief or agricultural property relief, the relief is deducted first and the annual exemption is set against whatever value is left (IHTM14142). See business relief and agricultural property relief.

How does the small gifts exemption work?

Section 20 IHTA 1984 exempts outright gifts by one person to another in a tax year if their total value does not exceed £250. You can give £250 to as many different people as you like. HMRC’s guidance at IHTM14180 makes three points that are often missed:

  • It is all or nothing. If gifts to one person in the year total more than £250, the exemption is lost entirely for that person. It does not exempt the first £250 of a larger gift.
  • No carry forward. Unlike the annual exemption, an unused small gifts allowance cannot be carried to the next year.
  • Not alongside other allowances for the same person. GOV.UK states that the small gift allowance can be used only if you have not used another allowance on the same person. You cannot give someone £3,000 under the annual exemption and a further £250 as a small gift.

The exemption covers outright gifts only. Gifts into or out of most trusts do not qualify (IHTM14180).

What can you give for a wedding or civil partnership?

Section 22 IHTA 1984 exempts gifts in consideration of marriage or civil partnership up to a limit set by the giver’s relationship to the couple. The limits apply per giver, per marriage, whether the gift goes to one or both partners (IHTM14191):

Giver Exempt limit
A parent of either partner £5,000
A grandparent or more remote ancestor, or one partner giving to the other before the wedding £2,500
Anyone else £1,000

The gift must be made on or shortly before the wedding or registration and must become fully effective only when it takes place. A gift made after the ceremony, or one that would stand even if the wedding were called off, does not qualify. A gift above the limit is exempt up to the limit and the excess is treated as an ordinary gift. GOV.UK confirms that the wedding allowance can be combined with any other allowance for the same person except the small gift allowance, so a parent can give £5,000 for the wedding and £3,000 under the annual exemption in the same tax year.

How do the exemptions work together? A worked example

Illustration only. Anne made no gifts in 2025 to 2026 except £1,000 to her nephew. In 2026 to 2027 she makes these gifts:

  • June: £5,000 to her son a week before his wedding, conditional on the wedding going ahead.
  • September: £5,000 to her daughter towards a car.
  • December: £200 to each of her four grandchildren.

The £5,000 wedding gift is fully exempt under section 22. The December gifts of £200 each are under £250 per grandchild, so all four are exempt as small gifts. For the £5,000 to her daughter, Anne has the 2026 to 2027 annual exemption of £3,000 plus £2,000 brought forward from 2025 to 2026 (£3,000 less the £1,000 used that year), so the whole £5,000 is exempt. Nothing she gave in the year counts towards her estate if she dies within seven years. Had she given her daughter £6,000, £1,000 would have been a potentially exempt transfer.

When do these exemptions not apply?

  • On death. They cover lifetime gifts only.
  • Deemed gifts under the reservation rules. When a reservation of benefit ends, the giver is treated as making a potentially exempt transfer, and section 19(5) stops the annual exemption reducing it (IHTM14343). The small gifts and wedding exemptions do not apply to it either.
  • Close company transfers apportioned to participators under section 94 IHTA 1984 get neither the small gifts nor the wedding exemption.

One helpful rule runs the other way. Section 102(5) of the Finance Act 1986 says a gift exempt as a small gift or a wedding gift can never be a gift with reservation. The annual exemption is not on that list, so a gift covered by it can still be caught. See gifts with reservation of benefit.

What records should you keep?

GOV.UK asks donors to record what they gave, to whom, its value and the date, because executors must report gifts made in the seven years before death. The schedule IHT403 tells executors not to list gifts where the total value was £3,000 or less in any tax year, or small amounts of £250 or less, but they still need records to show that the limits were not exceeded and how any carried forward exemption was used. Regular gifts paid from income may fall under a separate exemption with no cash limit, explained on our page on gifts out of surplus income.

What are the common mistakes?

  • Assuming the £3,000 carried forward can be used before the current year’s exemption, or that it can roll forward for several years.
  • Adding a £250 small gift on top of an annual exemption gift to the same person.
  • Making a wedding gift after the ceremony, which loses the section 22 exemption.
  • Treating each spouse’s gifts as joint. Each must have made the gift from their own assets to use their own exemption.
  • Forgetting that gifts using the annual exemption can still be caught if the giver keeps a benefit.

The nil rate band and other thresholds for the current year are on our 2026 to 2027 rates page.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.