Tax on Gifts, Allowances & Exemptions
Clear legal advice on lifetime gifting and how tax rules may affect your estate planning.
Understanding the tax implications of gifting.
Making gifts during your lifetime can be an effective way of passing wealth to family members or others you wish to support. However, gifting can have both inheritance tax and capital gains tax implications, and understanding the rules around tax on gifts is essential before transferring assets.
As part of wider estate planning, our solicitors advise on how lifetime gifts interact with inheritance tax legislation and, where relevant, capital gains tax rules. Careful planning helps ensure that gifting decisions are made with a full understanding of potential consequences.
Tax on gifts may arise depending on:
- The value of the gift.
- The timing of the gift.
- The type of asset being transferred.
- Whether you continue to benefit from the asset.
- Whether the asset has increased in value.
Understanding these factors is essential before transferring significant assets.
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Inheritance tax and lifetime gifts?
In many cases, gifts made during your lifetime may fall outside your estate for inheritance tax purposes if you survive for seven years. These are commonly known as potentially exempt transfers.
There are also specific exemptions and allowances, including:
- The annual gift allowance.
- Small gifts exemption.
- Wedding or civil partnership gift allowances.
- Gifts made out of surplus income.
If death occurs within seven years of making a larger gift, some or all of its value may still be taken into account when calculating inheritance tax.
Capital gains tax and gifted assets
While cash gifts do not usually give rise to capital gains tax, gifts of certain assets, such as gifts of property, shares or investment portfolios, may trigger capital gains tax at the point of transfer.
This is because, for tax purposes, the gift is often treated as if the asset were sold at market value, even if no money changes hands.
For example:
- Gifting a buy-to-let property that has increased in value may give rise to capital gains tax.
- Transferring shares in a private company may also trigger a capital gain, depending on the circumstances.
Understanding the interaction between capital gains tax and inheritance tax is essential when making significant transfers.
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How our solicitors advise on tax on gifts.
Advising on tax on gifts requires a clear understanding of how lifetime transfers interact with inheritance tax legislation and estate structures.
We advise on:
- Reviewing proposed lifetime gifts within the context of your wider estate.
- Assessing potential inheritance tax implications.
- Considering capital gains tax exposure where relevant.
- Identifying available exemptions and allowances.
- Advising on ownership structures and documentation.
- Coordinating gifting decisions with your will and estate planning.
Our private client solicitors regularly advise individuals and families across London and the South East on lifetime gifting and inheritance tax planning.
As a Lexcel accredited firm, we provide careful, structured advice designed to ensure gifting strategies are both tax efficient and legally robust.
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Making informed gifting decisions.
Lifetime gifts can form part of effective estate planning, but significant transfers should only be made with a clear understanding of the legal and tax implications.
Our private client solicitors advise individuals and families across London and the South East on how gifting interacts with inheritance tax, capital gains tax and wider estate structures.
Contact us to discuss your lifetime gifting plans.
Frequently asked questions
Can estate planning reduce inheritance tax?
In many cases, yes. Estate planning can influence how inheritance tax applies by ensuring allowances, exemptions and reliefs are properly utilised. This may involve reviewing ownership arrangements, adding trusts to your will or making gifts while you are alive. No matter how much you plan, tax can't always be avoided, but good planning can cut what you pay.
Does estate planning include business interests?
Yes. Business assets form an important part of an estate. Consider succession planning, ownership and Business Relief early on to avoid disruption.
How does estate planning differ from making a will?
Your will outlines the distribution of your assets after death; estate planning looks beyond the will to evaluate ownership structures, tax allowances and whether a trust or business arrangement would help.
Is estate planning only for wealthy individuals?
Anyone who owns property, savings or investments should consider estate planning. Due to rising asset values, more estates are exceeding inheritance tax thresholds. Early legal planning allows you to structure your affairs carefully rather than reacting later. Our estate planning solicitors can help determine whether you need a formal plan.
What is estate planning?
Estate planning is the process of structuring your assets within a clear legal framework so they pass according to your wishes while considering tax allowances and administrative considerations. It typically involves reviewing your will, ownership arrangements, lifetime gifts and trust structures to ensure they operate effectively together.
When should I review my estate plan?
Estate planning should be reviewed periodically, particularly after major life events such as marriage, divorce, the birth of children, property acquisition, business changes or significant increases in asset value.
Are gifts always tax free?
Not necessarily. Small cash gifts may fall within annual exemptions, but larger gifts can have inheritance tax implications if you die within seven years. In addition, gifts of assets such as property or shares may trigger capital gains tax at the point of transfer. Whether tax arises depends on the value of the gift, the type of asset and your wider estate position.
Can I gift my house to avoid inheritance tax?
Transferring your home may not remove it from your estate for inheritance tax purposes if you continue to live there or benefit from it. In addition, capital gains tax may arise if the property is not your main residence. Gifting property requires careful legal advice, and further guidance is available on our gifting a property page.
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