Inheritance and Gifting: How to Gift Money to Your Children Legally

Are you thinking about gifting money to children but unsure of the tax implications? Understanding the rules around financial gifts, and how they interact with inheritance law and Inheritance Tax, is essential to making the most of your gift.

In this guide, updated for the 2026–27 tax year according to Government rules, we explain the main factors to consider before making a gift, from annual exemptions to the seven-year rule, and how to choose the most effective and tax-efficient way to give money to your children.

Inheritance tax (IHT) in short: what it is and how it works

Inheritance tax (IHT) is a taxation on the value of a person’s estate, calculated at the time of death, and includes real estate, savings, investments and other assets. In the United Kingdom, the amount payable depends on:

• the size of the estate
• deductions, thresholds and allowances
• how the assets are distributed

Key thresholds and deductions for 2026-27

• Nil-Rate Band (NRB) of £325,000 for each person. If the value of the estate is less than this amount, no inheritance tax is payable.

• Residence Nil-Rate Band (RNRB), of £175,000 on top of the NRB, which applies if you transfer your main residence to a direct descendant (e.g. a child or grandchild). The RNRB is not automatically available when you leave your main residence to a child or other direct descendant. Certain conditions must be met, and the allowance cannot be more than the value of the qualifying residence. The RNRB is also reduced for estates worth more than £2 million, by £1 for every £2 above this threshold.
• Couples’ allowance: married couples and civil partners can combine their NRB and RNRB, potentially transferring up to £1 million tax-free. Any allowance not used by one partner can be transferred to the other.

Standard IHT rate

The standard IHT rate is 40% on the value of the estate exceeding the available allowances, reducible to 36% if at least 10% of the net estate is left to charity.

Some transfers and assets can be exempt from IHT or benefit from specific reliefs:

• Spouse or civil partner: transfers between spouses or civil partners are generally exempt from IHT, with no value limit. But special rules can apply where one spouse or civil partner is not a long-term UK resident. Since 6 April 2025, long-term UK residence has replaced the previous domicile-based rules for these purposes.
• Charitable gifts: gifts and bequests to qualifying charities are generally exempt from IHT. There is no general value limit on the charitable exemption. In addition, leaving at least 10% of the relevant net estate to qualifying charities may reduce the IHT rate from 40% to 36%.
• Business and agricultural property: certain qualifying business and agricultural assets can benefit from Business Property Relief (BPR) or Agricultural Property Relief (APR). From 6 April 2026, 100% relief is generally available on up to £2.5 million of qualifying agricultural and business property, with qualifying value above this amount generally receiving 50% relief. The £2.5 million allowance can also be transferable between spouses and civil partners in certain circumstances.

Gifting money to your children: 2026-27 rules and legal procedures

Many parents and grandparents choose to leave money to their children after their death. It is a convenient way of investing for children. But there is a growing trend to gift money before parents or grandparents die. Many give the gift of premium bonds to children, others may decide to open a child’s savings account.

Whether you decide to gift money to children through your last will and testament as part of your estate or earlier, you need to know how to navigate the tax rules. So first, let’s look at inheritance tax, sometimes referred to as hereditary tax in the UK.

Can I gift money to my children via my last will and testament?

Yes, you can, and there is one important, fundamental rule whereby inheritance tax gifts to children will be exempt from inheritance tax (IHT for short) if the total value of your estate is less than £325,000.

This is the inheritance tax allowance if no property is included in the estate. If property is included, the allowance increases to £500,000. Any excess over and above these allowances, and the answer to the question, “How much inheritance tax will be deducted,” is 40%, unless the excess goes to your spouse, civil partner, a charity, or an amateur community sports club.

It’s also worth knowing that if the IHT threshold belonging to your spouse or civil partners wasn’t used to its maximum, the unused value could be added to your own IHT threshold. Technically, any money you bequeath in your will is not counted as a gift but as part of your estate and is subject to inheritance tax rules.

UK rules outside inheritance tax to gift money to your children

How much money can you gift your children or grandchildren tax-free while you are still alive? It varies, as you will see when you read on, but you need to be aware that it can be subject to tax as a Potentially Exempt Transfer (PET) depending on the amount, and something called the 7-year rule.

If you die 7 years or more after you have gifted money to your children or grandchildren, it will not be subject to IHT. However, inheritance tax could be due if you die before seven years have elapsed.

So, if you’re asking yourself, “Can I gift money to my children tax-free?” – you can, but it depends on something called “taper relief”. In terms of years before your death, the rate at which taper relief comes into play is as follows:

PET taper relief only comes into consideration when the total amount of money gifted during the seven years preceding your death is over the £325,000 threshold.

Impact on family assets and estate planning

If you regularly make the most of your £3,000 per annum tax-free gift allocation, it’s important to fully understand the 7-year rule because it could potentially impact both the family assets and your estate planning. The more you gift, the less your estate could be worth, but on the other hand, the longer you survive such gifts, the less IHT tax will be due.

How much can you gift tax-free?

There is no general limit on how much money you can give to your children during your lifetime. But gifts that are not covered by a specific exemption may have Inheritance Tax implications if you die within seven years.

The annual exemption is currently £3,000 per tax year: this is a total allowance for the donor. If you have more than one child, you can divide the £3,000 allowance between them in whatever way you choose.

If you do not use the full £3,000 annual exemption in one tax year, you can carry the unused amount forward to the following tax year only. This means that, if you have not used your previous year’s allowance, you could potentially make gifts of up to £6,000 covered by the annual exemption in one tax year. The previous year’s unused allowance must be used after the current year’s £3,000 exemption.

What other gifts for children are tax free?

As mentioned earlier, you can bequeath your children or grandchildren up to £325,000 tax-free in your will as part of your estate. 

But, of course, your estate also covers other things. When considering gifts and inheritance tax relating to your estate, it’s not only money you can include. Other things apply too, such as property and land, personal items (antiques, furniture, jewellery, etc.), and stocks and shares listed on the LSE.

Wedding gifts- including civil partner agreements

If you are planning to give money to your child, grandchild or another family member as a wedding or civil partnership gift, the gift may be exempt from Inheritance Tax (IHT), provided it meets the relevant conditions. For the 2026–27 tax year, the wedding and civil partnership gift exemption allows you to give:

• £5,000 to your child
• £2,500 to your grandchild or great-grandchild
• £1,000 to any other person

The wedding or civil partnership gift exemption can be combined with other IHT gift exemptions, such as the £3,000 annual exemption. But it cannot be combined with the £250 small-gift exemption for the same thing. For example, if your child is getting married, you could potentially give them a £5,000 wedding gift plus up to £3,000 using your annual exemption.

Paying regular gift money to your children

You can also regularly gift money to children to help with their costs of living. There is no ceiling to this, and it’s tax-free, provided you can afford such payments and pay them out of your regular monthly income, on which of course you have already paid tax.  This “normal expenditure out of income” gift can be used to pay for the following.

Can I gift money to my children for education or housing?

Two of the biggest financial challenges any child will face in their lifetime are the cost of education and rent costs. Regular gift money can be offered to help with both, and this can come from parents and grandparents.

Providing a monthly allowance for children who become university students can be of huge benefit to the child. But because grandparents want to ensure that the money is used for the right causes and is not just frittered away, you might want to pay for specific expenses such as accommodation or monthly supermarket bills. Whatever you decide as a grandparent, it’s a good idea to have a discussion with the child’s parents first.

Gifting money into a child’s savings account

It is also possible to gift money to a child’s savings account, but it is important to choose the right type of account. Ordinary savings accounts for children and babies often offer low interest rates and risk losing value in real terms due to inflation. 

For long-term savings, you may want to consider tax-efficient options such as a Junior ISA (annual allowance of £9,000 for 2026-27) or a bare trust, which can offer better growth potential and protect returns from tax.

The amount you can give also depends on the source of the funds:

• contributions from excess income that are paid regularly: these benefit from the exemption for normal expenses charged against income and are immediately excluded from the estate for inheritance tax purposes;
• contributions from savings or capital may be subject to other IHT rules, such as the annual exemption of £3,000 or the seven-year rule.

Key differences between regular lifetime donations and inheritance

When should you start gifting money to children?

There is no single best time to start giving money to your children. Starting early can allow children to benefit from financial support or, where money is invested, from a longer investment period and the potential benefits of compound growth. But investments can fall as well as rise, so returns are not guaranteed. So, you should remember:

• Start early if possible, the earlier you begin, the more time investments have to grow, and the greater the potential benefit from compounding.
• Consider a Junior ISA (JISA): annual allowance is £9,000 for 2026–27.
• Cash JISA: lower risk, but interest rates may be modest and could be eroded by inflation.
• Stocks and Shares JISA: potentially higher returns over the long term, but carries investment risk.
• Use available exemptions and allowances: combine JISA contributions with other tax-free gift allowances (e.g., £3,000 annual exemption) where appropriate.

When investing money for a child, it is important to consider both the level of risk you are comfortable with and how long the money can remain invested. A longer investment horizon can provide more time to manage short-term market fluctuations, but investment returns are never guaranteed. How to mitigate risks:

• Diversify across different asset types.
• Invest for the long term; JISA funds are locked until the child turns 18.

If you are unsure how to invest or make the best use of allowances, consult an FCA-authorised financial adviser.

Frequently Asked Questions