Christmas is a time for generosity, and many people choose to give money to children, grandchildren or other loved ones to help with presents, holidays, savings or even a deposit for a first home. While giving money can be a wonderful way to support family during your lifetime, it is worth understanding how those gifts could affect your estate if you die within the following seven years.
From a Wills and estate administration perspective, a little planning now can help prevent unexpected inheritance tax liabilities and difficulties for your loved ones in the future.
When you give money away during your lifetime, the gift may be treated as a potentially exempt transfer (PET) for inheritance tax purposes. This generally applies to outright gifts to individuals, such as giving your child £10,000 towards a house deposit.
If you survive for seven years after making the gift, it will normally fall outside your estate for inheritance tax purposes. However, if you die within seven years, the gift may need to be taken into account when calculating the inheritance tax position of your estate.
It is important to understand that not every gift made within seven years will result in inheritance tax being payable. The outcome depends on the value of the gift, any available exemptions, the value of your estate and the applicable inheritance tax thresholds.
The good news is that some gifts can be made without using up your inheritance tax allowances.
Under the annual exemption, you can generally give away a total of £3,000 each tax year without inheritance tax being due on those gifts. If you did not use the previous tax year’s exemption, you may be able to carry it forward for one year, subject to the rules.
There are also exemptions for certain smaller gifts of up to £250 per person per tax year, provided the conditions are met. In addition, gifts made to mark a wedding or civil partnership may qualify for specific exemptions, depending on the amount and your relationship to the recipient.
Another important exemption is for gifts made out of your normal income. If you regularly give money away from your income, and the gifts form part of your normal expenditure, you are left with enough income to maintain your usual standard of living, and the relevant conditions are satisfied, those gifts may be exempt from inheritance tax.
This could be particularly useful for people who regularly help family members financially. However, a large Christmas gift should not automatically be assumed to qualify.
If you die within seven years of making a taxable gift, your executors may need to establish when the gift was made, its value and whether any exemptions apply.
Potentially exempt transfers are generally considered in date order when assessing inheritance tax. If the total value of relevant gifts exceeds the available nil-rate band, inheritance tax may become payable on the gifts.
Taper relief may reduce the tax payable on certain gifts where death occurs between three and seven years after the gift. Crucially, taper relief reduces the tax on the gift, not the value of the gift itself, and it does not apply where no inheritance tax is payable on the gift in the first place.
The position can be more complicated where several gifts have been made over a number of years. Your executors may need to obtain bank statements, records of transfers and details of previous gifts to establish the correct inheritance tax position. Depending on the circumstances, inheritance tax attributable to a gift may also affect the recipient.
If you are planning to give money this Christmas, keep a simple record of the amount, date, recipient and reason for the gift. Make a note of any exemption you believe applies and retain supporting evidence, particularly if the gift is being made from surplus income.
These records can make estate administration considerably easier and reduce the burden on your executors at an already difficult time.
Giving money during your lifetime can be a valuable part of estate planning, but it should be considered alongside your Will, wider financial circumstances and future needs. You should ensure that any gift leaves you with sufficient funds to support yourself and does not unintentionally affect your intended estate distribution.
A little preparation this Christmas could make a real difference to your loved ones in the future, because your family matters
Article dated 5.11.2026
Bethany is our Wills & Probate Paralegal based at our Melton Mowbray Office.
She has an impressive law background after achieving an Honours Bachelor of Law and a Bachelor of Criminology and Criminal Justice. Beginning her career as a Litigation Paralegal in the Supreme Court of Queensland, Australia, Bethany has moved to th United Kingdom to become admitted as a Solicitor.
Outside of work, Bethany enjoys walking through the countryside with her dog as well as horse riding.
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