In the UK you can give your children as much money as you like, and in most cases nobody pays tax on the gift when it is made. Your child pays no income tax on cash received as a gift, and a gift of sterling cash cannot create capital gains tax because sterling is not a chargeable asset. The tax that matters is inheritance tax on your death. A gift is ignored if it falls within an exemption, such as the £3,000 annual exemption, £250 small gifts or regular gifts out of surplus income, or if you survive it by 7 years. The other trap catches parents of children under 18. If the money you give produces more than £100 of income a year, all of that income is taxed as yours.
Do you have to pay tax on gifted money?
For the person receiving it, almost never. A cash gift is not income, so it does not go on a tax return and does not count towards the recipient's tax bands. The income the money later earns, such as savings interest or dividends, is taxable in the normal way. For under-18s, though, it may be taxed on the parent (see below).
For the person giving it, there is no tax at the time on a gift to an individual. Instead, it is a "potentially exempt transfer". If you live for 7 years after making it, it falls out of account for inheritance tax entirely. If you die within 7 years, the gift is added back into your estate for inheritance tax, unless an exemption covered it. Gifts into most trusts are treated differently and can be taxable immediately. See what is a discretionary trust.
The tax-free gift allowances
These exemptions take a gift outside inheritance tax straight away, whenever you die. They are set out in sections 19 to 22 of the Inheritance Tax Act 1984:
| Exemption | Limit | Key condition |
|---|---|---|
| Annual exemption | £3,000 per tax year | Unused amount can be carried forward one tax year only |
| Small gifts | £250 per recipient per tax year | Cannot be combined with another allowance for the same person |
| Wedding or civil partnership | £5,000 to a child; £2,500 to a grandchild or great-grandchild; £1,000 to anyone else | Given in consideration of the marriage or civil partnership |
| Normal expenditure out of income | No fixed limit | Regular, made out of income, leaving you enough to maintain your usual standard of living |
The allowances are per giver, not per family, so each parent has their own. As an illustration, two parents who made no gifts last tax year can give £12,000 between them this year using annual exemptions alone (£3,000 each for this year plus £3,000 each carried forward). gov.uk's own example combines a regular payment of £60 a month with the £3,000 annual exemption to the same child in the same year.
The normal expenditure exemption is the most valuable and the most often lost. It covers regular payments such as paying a child's rent or saving monthly into an account for a child under 18, but it is decided on evidence after you have died. Executors have to show a pattern of giving, that the money came from income rather than capital, and that you could still maintain your usual standard of living. A standing order and a simple annual record of income and outgoings make that far easier.
If you die within 7 years: taper relief
A gift that is not covered by an exemption uses up your £325,000 nil-rate band first. Tax arises on the gift itself only if the gifts made in the 7 years before death add up to more than £325,000. In that case the rate on the gift depends on how long before death it was made:
| Years between gift and death | Rate of tax on the gift |
|---|---|
| Less than 3 | 40% |
| 3 to 4 | 32% |
| 4 to 5 | 24% |
| 5 to 6 | 16% |
| 6 to 7 | 8% |
| 7 or more | 0% |
Even when a gift is within the nil-rate band and no tax falls on it, it still reduces the band available to the rest of the estate, which can raise the tax on what you leave. Our guide to potentially exempt transfers works through the mechanics. Where gifts in the 7 years exceed £325,000, the recipient can be liable for the tax on their gift.
Two common mistakes undo gifts. The first is a gift with reservation. If you give money but keep a benefit from it, the gift still counts as part of your estate. The second is a sale at an undervalue. Selling something to your child for less than it is worth is a gift of the difference.
Gifts to under-18s: the £100 parental rule
Section 629 of the Income Tax (Trading and Other Income) Act 2005 stops parents using a child's personal allowance to shelter their own savings income. If a parent gives money to their own child who is under 18 and unmarried, and that money produces more than £100 of income in a tax year, all of the income is taxed as the parent's, not just the excess. HMRC's manual gives the example of a child whose interest is £105: the whole £105 is the parent's income. The £100 limit applies separately to each parent, and stepchildren are included.
The rule does not apply to gifts from grandparents or other relatives, or to income that is tax-free anyway. The usual home for a parent's gift is a Junior ISA, where income and growth are tax-free. Anyone can pay in, up to a combined £9,000 per child for 2026/27. The money belongs to the child and cannot be withdrawn until they turn 18.
Practical points before you give
- Record every gift. Your executors will have to identify gifts made in the 7 years before death. Note what you gave, to whom, its value and the date;
- Use the annual exemption every year. It cannot be carried forward more than one year, so a gap is lost for good;
- Think about control. An outright gift to an adult child is theirs absolutely. If you want to keep a say over how the money is used, a trust or a documented loan may suit better. See loans to family;
- Property is different. Giving a home or shares can trigger capital gains tax for you. See gifting property to children.
The exemptions are summarised on gov.uk. Acumon advises families on structuring and documenting lifetime gifts through inheritance tax planning and private client tax. If you plan to give more than the annual exemptions each year, set up the record-keeping before the first payment.