Dealing with Inheritance Tax (IHT) is a challenge more and more families are facing.
And the number of families affected is likely to rise higher still from 6 April 2027 – the date at which unused pensions will be included in IHT calculations for the first time.
So, more estates are expected to be caught by the IHT threshold. And the nil-rate band has been frozen at £325,000 since 2009 – any portion of your estate that exceeds this amount may be subject to IHT at 40%.
To put this into perspective, in the 2025/26 tax year, the government collected £8.5 billion in IHT receipts. In 2026/27, the Office for Budget Responsibility expects IHT receipts to total £9.5 billion. By 2030/31, this figure could rise to £14.5 billion.
In short, without careful planning, a significant portion of your estate could be lost unnecessarily, reducing what is passed on to future generations.
If you’re concerned about the influence IHT could have on your financial legacy, gifting wealth while you’re alive might be just the trick.
Financial treats you could give as a tax-efficient gift
There are a variety of ways to gift your wealth tax-efficiently, allowing you to pass wealth and assets to your loved ones and helping to reduce – or entirely remove – an IHT bill on your estate.
While you may immediately think about giving cash, you could also gift:
- Personal possessions, such as art, jewellery, or furniture
- Stocks and shares (like those listed on the London Stock Exchange)
- Property or land.
To find out more about the tax rules surrounding gifting your property or other possessions, please get in touch and we’ll help you put the right plans in place.
For the purposes of this article, we’ll focus on gifting cash.
4 tax-efficient ways to treat your children and grandchildren during your lifetime
Approached with care, gifting money during your lifetime could help you transfer your wealth and reduce the size of your estate.
1. Use your annual exemption
Each tax year, you have an annual gift exemption. In 2026/27, you can gift £3,000 free of IHT.
You can gift the entire amount to one person or split it among multiple people. You can also carry over any unused amount from your annual exemption to the following tax year.
2. Make as many small gifts of £250 as you’d like
You can gift small sums, up to £250, to as many people as you like each tax year.
The only catch is that you can’t use this allowance for anyone who’s already benefited from a different gift allowance in the same tax year. For example, if you gifted your full £3,000 annual exemption to your daughter, you couldn’t then use the small gift rule to top it up.
That said, birthday or Christmas gifts that you make from your regular income are free of IHT.
So, extending the example above, as long as the money came from income (not capital), you could still gift cash to your daughter on her birthday and at Christmas.
3. Gift regularly from your income
You can make regular payments free of IHT, as long as they come from your income, rather than capital.
If you have a large pension and are concerned that the forthcoming rules could lead to a substantial IHT bill on your estate, this could be a useful way to share your pension wealth with your family while you’re still alive and could help to mitigate potential IHT.
You could use the regular gifting rule to:
- Make third-party pension payments to help boost your adult children’s pensions
- Help your children pay their rent, especially if they’re studying at university or doing an internship
- Save into your grandchild’s bank account or Junior ISA, provided they’re under 18.
There are no limits on the amounts you can give away tax-free through regular gifts, but there are strict rules you’ll need to follow to avoid your regular gifts becoming liable for IHT.
Gifts must:
- Be made regularly – for example, weekly, monthly, or quarterly
- Form part of your normal expenditure
- Not impact your usual standard of living.
To ensure your regular gifts don’t come under scrutiny by HMRC, keep meticulous records that evidence an established pattern of gifts.
4. Be even more generous using a “potentially exempt transfer”
Your wealth is yours to do with as you wish, so of course you could gift as much of your estate as you like during your lifetime. And a “potentially exempt transfer” is a tax-efficient way to do so.
In this case, the “seven-year rule” allows you to gift cash or assets tax-free, provided you live for at least seven years after the date the gift was made.
If you die before seven years have elapsed, the gift may become liable for IHT.
If you die within three years of making the gift, it may be subject to IHT at the standard 40% rate. After three years, the rate of IHT tapers on a sliding scale until seven years have passed and the gift usually becomes completely tax-free, as shown by the table below:
| Years between gift and death | Potential IHT rate |
| Less than 3 years | 40% |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 years or more | IHT-free |
This is known as “taper relief”. It applies only if the total value of the gifts made in the seven years before you die exceeds the £325,000 nil-rate band.
As well as the gifting options outlined here, there may be other steps you can take to reduce a future IHT bill on your estate. Acting today could help ensure your wealth benefits the people and causes that matter most for generations to come.
Get in touch
The best legacy plans are made long before they are needed.
If you’re worried that your estate might become liable for IHT, treating your family and loved ones while you’re still alive could help to reduce a potential IHT bill.
To find out more and discuss how we can help you to create a tax-efficient estate plan, email contactme@kbafinancial.com or call us on 0161 260 2002.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
HM Revenue and Customs’ practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The Financial Conduct Authority does not regulate estate planning or tax planning.
For specialist tax advice, please refer to an accountant or tax specialist.
Approved by The Openwork Partnership on 07/10/2026.