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When does helping a family member financially count as a gift for Inheritance Tax?

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UKUpdated 6 October 2026 · Written by BuyMeWhiskey Editorial Team · How we check facts

Helping family counts as a gift for Inheritance Tax unless it's exempt, and regular help from surplus income, the £3,000 annual exemption, £250 small gifts and reasonable maintenance all are; any other gift only matters if you die within 7 years.

Next, check how the 7-year rule and the £325,000 threshold would apply to a larger gift. The worked example below shows the sums.

What counts as a gift

For Inheritance Tax (IHT), a gift is anything of value you give away while you're alive: money, possessions, property or shares. Selling something to a relative for less than it's worth also counts, because the difference in value is treated as a gift. Paying a bill for someone, such as their rent, a car or school fees, is a gift of that money.

That doesn't mean helping your family creates a tax bill. Most gifts never become taxable, for two reasons. First, many are exempt as soon as you make them. Second, a gift that isn't exempt only comes into the IHT calculation if you die within 7 years.

Help that is exempt straight away

Annual exemption: £3,000 a tax year in total, to one person or split between several. Unused exemption can be carried forward one tax year only.
Small gifts: up to £250 per person per tax year, to as many people as you like, as long as you don't use another allowance on the same person.
Wedding or civil partnership gifts: up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, or £1,000 to anyone else.
Normal expenditure out of income: regular payments with no upper limit, if the conditions below are met. GOV.UK's examples include paying rent for your child, saving for a child under 18 and supporting an elderly relative.
Spouse or civil partner: unlimited, provided they live in the UK permanently. Gifts to charities and political parties are also exempt.

You can combine the wedding allowance and normal expenditure out of income with any other allowance for the same person, except the small gift allowance.

The "normal expenditure out of income" test

This is the exemption that usually covers ongoing family support. HMRC's manual says a gift qualifies only if all three conditions are met:

It formed part of your normal expenditure. In practice this means a regular pattern or a commitment to keep paying, such as a standing order for a child's rent, rather than a one-off.
It was made out of income, not capital.
It left you with enough income to keep up your normal standard of living. If you have to dip into savings to cover your own bills, the test fails.

What counts as "income"?

Income isn't defined in the Inheritance Tax Act. HMRC says it should be worked out each year using normal accounting rules, and it is your net income after Income Tax. Typical sources are salary, self-employed profits, pensions, rent, interest and dividends. Some regular receipts are capital, not income. These include the capital element of a purchased life annuity and the common 5% annual withdrawals from a single-premium investment bond.

Surplus income doesn't stay income forever. If there's no evidence to the contrary, HMRC treats unspent income as becoming capital after about two years. So you can't save up surplus income for a decade and then give it away as "income". HMRC first looks at whether the income of the year you made the gift was enough to cover it.

Maintaining your family isn't a gift at all

Separately, section 11 of the Inheritance Tax Act says some payments aren't transfers of value in the first place. These include maintaining a spouse or former spouse, and paying for a child's maintenance, education or training until the year they turn 18 or, if later, finish full-time education. Reasonable provision for the care or maintenance of a dependent relative is also covered. "Reasonable" depends on both your finances and theirs, and HMRC refers large claims to its technical team.

When a gift becomes taxable: the 7-year rule

Gifts that aren't covered by an exemption are usually potentially exempt. There's no tax if you live for 7 years after making them, unless the gift went into a trust. If you die sooner, the gift is added back and uses up your £325,000 tax-free threshold before your estate does. Anything above the threshold is taxed at 40%.

Gifts made 3 to 7 years before death get taper relief, which reduces the rate to 32% (3 to 4 years), 24% (4 to 5), 16% (5 to 6) or 8% (6 to 7). Taper relief only matters if your gifts in the 7 years before death total more than £325,000. If someone gives away more than £325,000 and dies within 7 years, the recipients may have to pay the tax on their gifts.

Watch-outs

Gifts with reservation: if you give something away but keep benefiting, for example giving your home to a child and carrying on living there, it still counts as part of your estate.
Keep records of what you gave, to whom, its value and the date. For normal expenditure claims, also keep a yearly summary of your income and spending. Your executors will need it.

Inheritance Tax rate on a gift above the threshold, by years between gift and death

Worked example

Margaret, a widow, has £42,000 a year of net income after Income Tax (a pension plus rent from a flat). Her own spending is about £30,000 a year.

Regular support: she pays her son's rent of £800 a month by standing order, which is £800 × 12 = £9,600 a year. After paying it she has £42,000 − £9,600 = £32,400 left, which still covers her £30,000 of living costs. This meets all three conditions, so it's exempt as normal expenditure out of income, with nothing added to her estate.
Annual exemption: she gives her granddaughter £3,000 from savings. Because it's capital, the income exemption doesn't apply, but it's covered by her £3,000 annual exemption.
A large one-off gift: she gives her daughter £20,000 from savings towards a house deposit. This is a potentially exempt transfer. If Margaret lives 7 more years, it's tax-free.

If she dies 5 years later, leaving a £400,000 estate (ignoring the extra residence allowance for passing a home to children): the £20,000 gift is counted first and uses part of her £325,000 threshold, which leaves £325,000 − £20,000 = £305,000 for the estate. The gift itself isn't taxed, because it's within the threshold. The estate pays 40% × (£400,000 − £305,000) = £38,000. The rent payments and the £3,000 gift don't affect the bill at all.

IHT: using normal expenditure from income – what counts as income?#

HMRC treats income as your net income after Income Tax, worked out each year using normal accounting rules: earnings, pensions, rent, interest and dividends. The capital part of a purchased life annuity and regular 5% withdrawals from an investment bond don't count. Without evidence to the contrary, unspent income is treated as capital after about two years.

Is paying my adult child's rent a gift for Inheritance Tax?#

Technically it's a gift, but it's exempt if it's regular, comes out of your income and leaves you enough to maintain your usual standard of living. GOV.UK gives paying rent for your child as an example of normal expenditure out of income. Keep a record of your income and spending each year so your executors can prove it.

How much can I give away each year without Inheritance Tax?#

You can give £3,000 in total each tax year under the annual exemption, plus any unused amount from the previous year, and as many £250 small gifts to different people as you like. Wedding gifts of up to £5,000 to a child are extra. Regular gifts from surplus income have no upper limit.

Making a large gift: how do I allow for IHT?#

A large one-off gift is usually a potentially exempt transfer: it's tax-free if you survive 7 years. If you die sooner, it uses up your £325,000 threshold before your estate does. If gifts in those 7 years total more than £325,000, taper relief can reduce the tax on gifts made 3 to 7 years before death. Record the date and value, and consider taking advice for very large sums.

What is the 7-year rule for gifts?#

No Inheritance Tax is due on a gift if you live for 7 years after making it, unless it went into a trust. Gifts made within 3 years of death are taxed at 40% if they exceed the threshold, and the rate tapers to 32%, 24%, 16% and 8% for gifts made 3 to 7 years before death.

Is supporting an elderly parent a gift for IHT?#

Reasonable provision for the care or maintenance of a dependent relative isn't treated as a transfer of value at all under section 11 of the Inheritance Tax Act. Regular help paid from your surplus income can also be exempt as normal expenditure. What counts as reasonable depends on both your finances and theirs.

What records should I keep of gifts?#

Keep a note of what you gave, who received it, its value and the date. For regular gifts from income, also keep a yearly summary of your net income and normal spending. Your executors will use these records to report gifts made in the 7 years before death.

Keep reading

Sources

Figures checked against these sources on 6 October 2026. If a rule changes, we update the page and its date.

General information, not personal financial advice. Rules depend on your circumstances; check the official source or speak to a regulated adviser before acting.