Giving money away

Inheritance tax thresholds for 2026/27

gov.uk and HMRC Inheritance Tax Manual, checked 23 September 2026. 2026/27 thresholds.

Both bands are transferable between spouses and civil partners as a percentage of the band unused on the first death, which is how the £1,000,000 figure arises. It holds only where a qualifying home passes to direct descendants.

Gifts that are exempt straight away

• £3,000 a year, as one gift or several. An unused annual exemption can be carried forward one year only.
• £250 to any number of different people, though not to somebody who has already had your annual exemption.
• Wedding gifts: £5,000 to a child, £2,500 to a grandchild or great-grandchild, £1,000 to anyone else.
• Regular gifts out of income, with no upper limit. Three conditions have to be met: the gift formed part of your normal expenditure, it came out of income and not capital, and you were left with enough income to maintain your usual standard of living. Keep a record of all three.
• Anything to a spouse or civil partner, and anything to a registered charity, a political party or certain national institutions.
• Maintenance payments to a spouse, a former spouse, a dependent relative, or a child under 18 or in full-time education.

The seven year rule

1. 1

   The gift is made

   Anything not covered by an exemption is a potentially exempt transfer. Nothing is due at the time.

2. 2

   Seven years pass

   The gift falls out of your estate entirely and no inheritance tax arises on it.

3. 3

   Or you die inside seven years

   The gift comes back into the calculation, and it uses up your nil rate band before the rest of your estate does.

4. 4

   Taper relief may reduce the tax

   Only where the gifts exceed the nil rate band. The tax on a gift made three to four years before death is charged at 32% instead of 40%, four to five years at 24%, five to six years at 16% and six to seven years at 8%.

Taper relief reduces the tax otherwise payable on a gift. Where the gift sits inside the nil rate band there is no tax, and so no taper relief.HMRC, Inheritance Tax Manual

What taper relief does

The residence nil rate band

What it adds

Up to £175,000 on top of the ordinary nil rate band, where a residence you have lived in passes to direct descendants.

Who counts as a direct descendant

Children, grandchildren and further descendants, including step, adopted and foster children, and their spouses or civil partners in some circumstances. Nieces, nephews and siblings do not.

The taper above £2m

The band falls by £1 for every £2 the estate exceeds £2,000,000, so it is gone entirely by about £2.35m where a full band would otherwise apply.

The taper is measured before reliefs

The £2m test is applied to the estate after liabilities but before exemptions and reliefs, so business relief does not keep an estate under the threshold.

Transferring it

Like the ordinary band it passes as a percentage to a surviving spouse. Tapering on the first death reduces the percentage available to transfer.

Downsizing

There are provisions for someone who sold or downsized a home after 8 July 2015, so the band is not automatically lost by moving to something smaller.