Parents hoping to give their children a financial boost have been urged to keep proper records of any gifts, or risk complications with inheritance tax (IHT). HM Revenue & Customs (HMRC) has issued a reminder about little-known rules that allow mums and dads to pass on money tax-free but only if certain conditions are met.
While many people know about the £3,000 annual gifting allowance, fewer are aware that there are ways to give more without tax being applied. From wedding gifts to regular contributions out of your income, families have opportunities to transfer wealth sensibly provided they track the details carefully. With the government hinting at tax rises and cuts to public spending later this year, financial experts stress that planning ahead has never been more important.
The basics: annual gifting allowance
Each individual in the UK can give away up to £3,000 per tax year without it counting towards the value of their estate. This is known as the annual exemption. If unused, the allowance can be carried over to the next tax year, giving couples the potential to gift up to £12,000 jointly in a single year.
Anything above this threshold may still be free from IHT in certain circumstances, but records are crucial in proving it.
Special occasions: weddings and civil partnerships
For milestone family events such as weddings and civil partnerships, parents and grandparents can gift larger sums free of tax.
- Parents can give up to £5,000
- Grandparents can give up to £2,500
- Friends or other relatives can give £1,000
These allowances are separate from the £3,000 annual exemption, meaning they can be combined if timed correctly.
The “normal expenditure out of income” rule
According to Myron Jobson, Senior Personal Finance Analyst at interactive investor, one of the most underused rules is the ability to make unlimited gifts so long as they come from surplus income and are part of a regular pattern.
“You can give away as much money as you like – without worrying about IHT – so long as payments are regular, and you can afford to make them from your normal expenditure,” he explained. “This can be a game-changer in estate planning.”
However, to qualify, these gifts must:
- Come from income, not capital
- Form a clear pattern (monthly, quarterly, or annually)
Leave enough for you to maintain your usual standard of living
Why record-keeping is critical
HMRC requires executors to provide evidence that these conditions were met. Without documentation, gifts may be challenged and potentially subject to IHT. Jobson stressed:
“The onus is on you to ensure that the executors of your will have all the information they need to satisfy HMRC. This means keeping detailed records of your income, outgoings, and the gifts themselves.”
Simple spreadsheets, bank statements and written notes can all help prove compliance and protect your family from unexpected tax bills.
Wider tax planning context
The warning comes as speculation grows over further tax rises and spending cuts at the Chancellor’s next fiscal event, expected in October. With government finances under pressure, households are being urged to make full use of allowances before potential rule changes.
As Jobson put it: “With tax rises seemingly on the horizon, effective tax planning has never been more crucial. Now is the time to evaluate and take steps to bolster your tax position and make the most of the allowances available to you.”
Long-term benefits of gifting wisely
Passing on wealth while you’re alive isn’t just about inheritance tax. It’s also about seeing your money make a difference now. Parents can help children onto the property ladder, support education costs, or simply ease the pressures of everyday living. With house prices and rents climbing, a timely gift could provide more value than an inheritance years down the line.
There’s also a psychological benefit. Many families find that planned, regular gifting creates healthy financial habits and opens up conversations about money that might otherwise feel uncomfortable. These habits can help children manage their own finances better in the future.
Risks of poor planning
On the other hand, failing to plan properly can lead to unintended consequences. If gifts are made sporadically, or without clear evidence they came from income, HMRC may classify them as part of your estate. That could push your estate over the £325,000 nil-rate band (or £500,000 if you’re passing your main residence to direct descendants), potentially triggering a 40% tax bill on the excess.
Without records, even well-meaning gifts could create stress for your loved ones at an already difficult time. Proper documentation ensures your intentions are honoured, and your family isn’t left footing an avoidable tax bill.
Final Summary
HMRC warns parents to keep records of tax-free gifts.
At Pie, we know tax rules can feel confusing at the best of times. That’s why we’re here to make it clearer, calmer, and a lot less of a headache. Our goal is simple: to give you the tools and know-how to stay in control of your money, while making sure you don’t miss out on allowances that are rightfully yours.
Gifting money to children can be an effective way to manage inheritance tax and provide financial help when it matters most. The UK’s system offers several allowances from the £3,000 annual exemption to generous wedding gift rules and unlimited regular gifts from income. But these opportunities only work if families keep the right paperwork and maintain consistency.
With speculation of tax rises in the coming months, planning ahead is essential. Parents who act now, record carefully, and use their allowances wisely could not only ease their children’s financial burdens but also safeguard their estate against unnecessary tax. And with Pie by your side, you’ll always have the support to make sense of the numbers and claim what’s yours without the stress.
