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Inheritance Tax
Inheritance Tax gift rule
many families may be overlooking
72% of UK adults unaware gifts from surplus income are IHT-exempt
For many families, gifting money to children or grandchildren is simply a way to help with everyday costs or to
give them a financial head start. However, new research suggests that almost three quarters (72%) of UK adults do not
realise that regular gifts funded by spare or surplus income can be immediately exempt from Inheritance Tax (IHT)[1].
T
he research, based on a survey of
investments. This could include pension income,
2,000 UK adults conducted between
interest, dividends or rental income after tax.
17 and 20 February 2026, also found
Second, the gifting should form a recognisable
that 31% of gifts made by those over
Get help if unsure
pattern. This might be monthly payments or regular
This exemption can be valuable, but the rules
55 in the past seven years were funded by surplus
contributions for birthdays or Christmas. One-off
are specific and each family’s circumstances
or spare regular income.
gifts are less likely to qualify.
differ. If you are considering regular gifts from
Third, gifts must not leave the donor unable to
surplus income, it is essential to obtain profes-
A valuable exemption
maintain their usual standard of living. If savings or
sional advice to confirm that the conditions are
Known as ‘normal expenditure out of income’, the
other capital have to be used to cover normal living
met and that appropriate records are kept.
exemption allows qualifying regular gifts to be
expenses, the exemption may not apply.
made without waiting seven years for them to fall
For further information, or to discuss how
the rules may apply to your circumstances,
outside the IHT calculation. Unlike many other gifts,
Keep careful records
please contact us. We look forward to hearing
the donor need not survive seven years, provided
Start by calculating your regular net income and
from you.
the strict conditions are met.
deducting your usual household spending. Any
With Inheritance Tax rules changing from April
genuine surplus could potentially fund a regular
2027, more families may be considering how best
gifting plan. Setting up standing orders can help
to pass on wealth during their lifetime. For those
establish a clear pattern of payments.
with income left over after covering their usual
Good records are equally important because
living expenses, regular gifting could provide a tax-
the exemption may need to be demonstrated by
efficient way to support loved ones.
executors after death. Keep bank statements,
correspondence and a schedule of gifts. HMRC’s
Three conditions to meet
IHT403 form includes a section for recording
There are three important tests. First, gifts must come
gifts, which can help establish whether the
from income rather than capital, such as savings or
exemption applies. t
Source data:
[1] Research for Canada Life was conducted among
a nationally representative sample of 2,000 UK adults
between 17–20 February 2026.
This article does not constitute tax, legal or financial
advice and should not be relied upon as such. Estate and
tax planning are not regulated by the Financial Conduct
Authority. For guidance, seek professional advice.
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