Exempt transfers are gifts and bequests that fall outside UK inheritance tax entirely, so they are ignored when working out whether an estate owes the 40% charge on the portion above the £325,000 nil rate band.1GOV.UK. How Inheritance Tax Works: Thresholds, Rules and Allowances Some exempt transfers for inheritance tax have no upper limit, others are capped, and a handful only work if you meet timing or evidential conditions. Used together, they can remove a significant chunk of an estate from tax, or eliminate the charge altogether.
Gifts Between Spouses and Civil Partners
Anything you leave to your spouse or civil partner, during your lifetime or through your will, is fully exempt with no upper limit. A £5 million estate passing entirely to a surviving spouse produces no inheritance tax bill on that transfer.2Legislation.gov.uk. Inheritance Tax Act 1984 – Section 18 The exemption is limited to legally married couples and registered civil partners. Cohabiting partners do not qualify no matter how long they have lived together.
Where One Partner Is Not a Long-Term UK Resident
From 6 April 2025, inheritance tax uses a long-term UK residence test in place of the old domicile rules. You count as a long-term UK resident once you have been UK tax resident for at least 10 consecutive years, or for 10 or more years out of the previous 20.3GOV.UK. Inheritance Tax if You’re a Long-Term UK Resident When one partner meets that test and the other does not, the unlimited spousal exemption is replaced by a lifetime cap of £325,000. Anything above the cap is taxable.4HM Revenue & Customs. Inheritance Tax Manual – IHTM11033 – Spouse or Civil Partner Exemption: Spouse or Civil Partner Domiciled Outside UK
The non-resident spouse can elect to be treated as a long-term UK resident, which restores the unlimited exemption. The election stays in force until the electing spouse has spent 10 consecutive tax years outside the UK.5HM Revenue & Customs. Inheritance Tax Manual – IHTM47041 – Long-Term UK Residence: Spousal Domicile Elections Before 6 April 2025 – Transitional Rules It also pulls the electing spouse’s worldwide assets into the scope of UK inheritance tax for that entire period, so it is not a decision to make without professional advice.
Gifts to Charities and Political Parties
Gifts to qualifying charities, the National Trust, national museums, and similar public institutions are fully exempt with no cap, whether made during your lifetime or in your will.6Legislation.gov.uk. Inheritance Tax Act 1984 – Section 23
Estates that leave at least 10% of their net value to charity qualify for a reduced inheritance tax rate of 36% on the remaining taxable portion, instead of the standard 40%.7GOV.UK. Inheritance Tax Reduced Rate Calculator On a taxable estate of £1 million above the nil rate band, the four-point reduction is worth £40,000. The 10% test is applied to the net estate after debts, liabilities, and other exemptions, so executors need to run the numbers carefully.
Qualifying political parties receive full exemption too. A party qualifies if at least two of its members were elected to the House of Commons at the most recent general election, or if one was elected and the party received at least 150,000 votes.8Legislation.gov.uk. Inheritance Tax Act 1984 – Section 24
The £3,000 Annual Exemption and £250 Small Gift Allowance
Every individual can give away £3,000 per tax year with no inheritance tax consequences. Unused annual exemption carries forward one year and one year only. Someone who made no gifts last year could give £6,000 this year; if that carried-forward amount is not used, it expires.9Legislation.gov.uk. Inheritance Tax Act 1984 – Section 19 The £3,000 can go to one person or be split across several.
Separately, you can give up to £250 to any number of different people each tax year without inheritance tax consequences.10Legislation.gov.uk. Inheritance Tax Act 1984 – Section 20 Ten friends could each receive £250 exempt. The catch is that the small gift allowance cannot be used for someone who has already received any part of your £3,000 annual exemption in the same tax year. Give your daughter £3,000 under the annual exemption and a further £250 to her that year is not exempt.
Gifts for Weddings and Civil Partnerships
Gifts made on the occasion of a marriage or civil partnership are exempt up to fixed amounts that depend on the donor’s relationship to the couple:
- Parents: up to £5,000 each
- Grandparents and remoter ancestors: up to £2,500 each
- Anyone else: up to £1,000
The limits apply per donor per wedding.11Legislation.gov.uk. Inheritance Tax Act 1984 – Section 22 Two parents could give £10,000 between them and two grandparents another £5,000. The gift has to be made on or shortly before the ceremony, and if the wedding does not go ahead the exemption falls away.
Wedding gifts stack with the £3,000 annual exemption for the same recipient. A parent could give their child £5,000 as a wedding gift and £3,000 under the annual exemption in the same year, all of it exempt. The only allowance that does not stack is the £250 small gift allowance.
Regular Gifts From Surplus Income
This is the exemption with no ceiling, which makes it the most powerful of the lot and also the hardest to secure. Regular payments made from your surplus income are fully exempt if three conditions are met: the gifts form part of your normal spending pattern, the money comes from income rather than capital, and you retain enough income afterward to maintain your usual standard of living.12Legislation.gov.uk. Inheritance Tax Act 1984 – Section 21
The word “normal” is where most disputes arise. Payments that form a clear pattern over time are easier to defend. Common examples include paying a family member’s life insurance premiums, contributing a set percentage of income to charity each year, or covering a grandchild’s school fees on an ongoing basis. A single gift can qualify if there is strong evidence it was the first in a planned series, but HMRC will look at that claim carefully.
The income requirement is strict. The money must come from earnings, pensions, dividends, or rental income. Selling an investment and gifting the proceeds does not qualify, even if you do it every year. And the standard of living test means what it says: if the gifts force you to dip into savings or cut ordinary spending, the exemption fails.
Executors have to prove all of this after the donor has died, often years later. Bank statements, payslips, and a simple spreadsheet tracking income, outgoings, and gifts can make the difference between the exemption being accepted and the gifts being added back to the taxable estate at 40%.1GOV.UK. How Inheritance Tax Works: Thresholds, Rules and Allowances
Lifetime Gifts and the Seven-Year Rule
Most other gifts between individuals during your lifetime are potentially exempt transfers. The gift is treated as exempt from the moment it is made, but that status is provisional. Survive for seven years after making the gift and it becomes permanently exempt and drops out of the inheritance tax calculation. Die within those seven years and it becomes chargeable.13Legislation.gov.uk. Inheritance Tax Act 1984 – Section 3A
Gifts that fail the seven-year test use up the deceased’s £325,000 nil rate band in the order they were made, oldest first. Tax is owed only on the portion of those gifts that pushes the cumulative total above the nil rate band. Taper relief reduces the tax rate on gifts made between three and seven years before death, but only where the cumulative chargeable gifts already exceed the nil rate band.14GOV.UK. How Inheritance Tax Works: Thresholds, Rules and Allowances The rates work like this:
- 3 to 4 years before death: 32%
- 4 to 5 years: 24%
- 5 to 6 years: 16%
- 6 to 7 years: 8%
Taper relief is often misunderstood as reducing the value of the gift. It does not. It reduces the rate of tax charged on the gift. A large gift made three and a half years before death still counts at full value against the nil rate band, and taper only helps once there is actual tax to charge on top.
What Business and Agricultural Property Relief Do Instead
Business property relief and agricultural property relief are worth flagging because people often lump them in with exempt transfers. They are not exemptions. They reduce the taxable value of qualifying assets by 50% or 100%, which can produce a similar result but works through a different mechanism, and both carry ownership and use conditions.15GOV.UK. Agricultural Relief for Inheritance Tax
For deaths and transfers on or after 6 April 2026, 100% relief under both reliefs combined is capped at £2.5 million per estate. Qualifying assets above that threshold receive 50% relief instead, producing an effective tax rate of 20% on the excess.16House of Commons Library. Changes to Agricultural and Business Property Reliefs for Inheritance Tax Farming families and business owners with qualifying assets above that level have a reason to revisit their planning before the cap takes effect.