We know many families are asking whether it makes sense to pass assets on while they are alive. Rises in rents and the struggle to get on the housing ladder mean adult children often need more help. We will set the scene and explain clear options.
Tax-efficient here means reducing inheritance exposure without creating a new capital gains or income bill. We explain practical steps and common pitfalls in plain English.
We will cover the main choices: cash versus shares, how the seven-year clock works, and when a trust gives control and protection. The best route depends on your circumstances, estate size, marital status and whether you hold business assets.
We use simple examples — married homeowners, adult offspring and phased annual gifts — so the guidance stays practical. We also flag upcoming rule changes (business relief limits from April 2026; pensions may enter IHT from April 2027).
This is an educational guide, not personalised advice. For complex estates or trust matters, seek regulated advice.
Key Takeaways
- Lifetime gifts can reduce inheritance exposure but may trigger other liabilities.
- Crew through options: cash, shares or trusts each have pros and cons.
- The seven‑year rule and timing matter for effective planning.
- Upcoming rule changes increase the need for timely decisions.
- Examples help make choices practical rather than theoretical.
- Seek regulated advice for complex estates or trust structures.
Understand what you’re trying to reduce: inheritance tax and estate value in the UK
First, we need to be clear about what the state actually charges on when someone dies. The bill is based on the total value of your estate, not just the home. That means savings, shares and property can push a household over the thresholds.
Nil Rate Band and Residence Nil Rate Band
The basic Nil Rate Band (NRB) shelters the first £325,000 from inheritance tax. There is an extra Residence Nil Rate Band (RNRB) of £175,000 when a home is left to direct descendants.
Couples can transfer unused allowances. That can lift the exempt amount close to £1 million for married or civil partner estates left to their children.
When the 40% rate applies
Above available allowances, the IHT rate is typically 40% on the excess. How you value assets, especially shares and property, will affect the final amount payable.
RNRB taper and practical prompts
The RNRB tapers away by £1 for every £2 of estate over £2 million and vanishes at £2.35 million (roughly £2.7 million for couples). That makes checking total estate value essential.
- List all assets and current values.
- Check ownership between spouses.
- Identify which items qualify for specific reliefs.
Map your portfolio and family goals before you gift
Match assets with purpose and timing. Start by noting who you want to help and what issue you want to solve. That keeps choices practical and fair.
Who receives help?
List family members and their needs: a child needing a deposit, a grandchild facing university costs, or a relative needing regular support.
Which asset suits the task?
Consider cash for quick needs, shares or funds for growth, ISAs for tax-efficient savings, pensions for income (withdrawal rules apply), and property for housing help.
| Asset | Best for | Key risk |
|---|---|---|
| Cash | Short-term costs | Reduces your emergency cover |
| Shares & funds | Medium-term growth | Market volatility |
| ISA | Tax-efficient savings | Cannot be transferred directly |
| Property | Housing support | Watch reservation rules if you keep living there |
Practical note: Outright gifts can leave recipients exposed in divorce or bankruptcy. Staged plans or trusts can protect against that. Treat giving as a process over time, not a one-off event.
How gifting investment portfolio to children inheritance tax uk works in practice
Practical rules govern most lifetime transfers — understanding them clears up a lot of uncertainty.
Potentially exempt transfers and the seven years rule
Most gifts to individuals are treated as Potentially Exempt Transfers (PETs). That means no IHT is due if the donor survives seven years from the gift date.
- Year 0: gift made — record the date and market value.
- Years 1–3: if death occurs, the full amount may be liable to IHT.
- Years 4–7: taper relief can cut any tax due on the gift.
Taper relief: how IHT can reduce after year three
Taper relief reduces the IHT payable on a gift that sits above the nil rate band. It starts in year three and steps down the tax rate over time.
Important: taper relief only lowers the tax on the gift amount above the nil rate band, not the whole estate.
Using lifetime gifts to protect the residence nil rate band
For estates near the £2 million threshold, reducing estate value can help preserve the Residence Nil Rate Band (RNRB). Thoughtful lifetime giving may restore RNRB that would otherwise be tapered away.
- Document every gift: date, amount, asset value and evidence of intent.
- Keep clear records for HMRC and for family clarity.
- Never give so much that you risk your later financial security.
“Plan gifts alongside retirement and care needs, not instead of them.”
For a practical guide on staged lifetime giving and timings, see our detailed note on lifetime gifting to reduce IHT.
Use UK gifting allowances and exemptions to cut inheritance tax now
Smart use of annual allowances lets you reduce future charges while keeping control today.
Annual £3,000 exemption and carry-forward
Each person has a £3,000 annual allowance. Use it every tax year to reduce your estate. If you missed last year, you may carry forward one year’s unused exemption.
Small gifts and wedding amounts
Small gifts: you can give up to £250 per recipient in a tax year, but not if another allowance is used for the same person. Parents may give £5,000 as a wedding gift to a child on or before the ceremony.
Gifts from surplus income
Regular payments from surplus income can be exempt if they don’t reduce your standard of living. Keep clear records: bank statements, a gifting log and notes of usual income and spending.
Charitable giving
Donations to registered charities are exempt from IHT and may also lower the overall tax bill on an estate.
| Allowance | Amount | Key rule |
|---|---|---|
| Annual | £3,000 | Carry forward one year if unused |
| Small gifts | £250 | Not combined with other allowance for same person |
| Wedding (parents) | £5,000 | Paid on or before the wedding day |
| Surplus income | Unlimited | Must be regular and well documented |
- Couples can pool allowances across years to build reductions.
- Record every transfer and the reason.
- For practical steps see reduce IHT with practical steps and read IHT-free gifts explained.
Plan for capital gains tax when gifting shares and other investments
When you move shares or a second property out of your name, the gain — not the sale price — usually triggers a charge. We set out the simple facts so you can make a calm decision.
When a disposal creates a charge
Giving non-cash assets is treated as a disposal for capital gains tax. That means you may face a CGT bill on the difference between cost and current value.
Connected persons and market value rules
Transfers to connected persons, including children, are priced at market value for CGT. Selling an asset cheaply will not cut your gains tax bill and can attract penalties.
Use the annual allowance and phased plans
The annual CGT allowance is small. Phasing transfers over several tax years can use multiple allowances and reduce the hit in any single year.
No CGT on death — the uplift point
There is no CGT on death. Assets get an uplift in value at that time, which often changes the trade-off between a lifetime disposal and leaving assets in the estate.
| Issue | Rule | Typical rate | Action |
|---|---|---|---|
| Transfer to spouse | No CGT between spouses | 0% | Consider spouse transfer first |
| Transfer to connected person | Market value used for CGT | 18%–24% | Avoid “cheap sales” |
| Annual allowance | Individual £3,000 | Exempt up to allowance | Phase transfers across years |
| Reporting | Residential property within 60 days | Pay when reported | Check GOV.UK guidance or seek advice |
Checklist: record acquisition costs, market value on transfer, and report any disposal as required. For large unrealised gains or mixed lots, seek professional advice.
Consider pensions, ISAs and business assets in light of rule changes
New rules make it vital to reassess pensions, ISAs and business shares in your wider plan. We outline the practical points and simple steps you can take now.
Pensions and IHT from April 2027
From 6 April 2027 unspent pension pots may be added to your estate for IHT unless left to a spouse. That brings pensions back into everyday planning.
Practical tip: review beneficiaries and consider timing of withdrawals. Withdrawals carry income charges and any subsequent gift may still be a PET with the seven year clock.
ISA withdrawals and gifting
You cannot transfer an ISA directly. Withdraw cash, then gift it if needed. Withdrawals are not subject to CGT or income tax, but they can form part of PET rules and IHT treatment.
Business Relief, AIM and trusts
From 6 April 2026 Business Relief is restricted: the first £1m may keep full relief, above that relief falls to 50% and AIM relief tightens after two years.
A trust can keep control of company shares, protect beneficiaries and simplify ownership. Remember registration and possible trust returns.
| Item | Key date | Planning action |
|---|---|---|
| Pensions | 6 Apr 2027 | Check beneficiaries; assess withdrawals vs keeping pot intact |
| ISA cash | Immediate | Withdraw then gift; record dates for PET/7-year tracking |
| Business Relief / AIM | 6 Apr 2026 | Consider timing of sales or reorganisation to preserve relief |
| Company shares into trust | Any time | Use trusts for control; review Trust Registration Service duties |
CGT hold-over can defer capital gains on gifts of unquoted trading company shares or into a trust. Balance that benefit against losing the uplift on death.
For practical step-by-step guidance on lifetime gifts see our gift guide.
Conclusion
Good estate planning starts with a clear tally of what you own and which allowances apply. Check NRB and RNRB thresholds, remember the seven‑year PET rule, and use annual exemptions where they help.
Practical steps: update an asset list, run an IHT estimate, plan annual gifts before the tax year ends, and keep tidy records for HMRC and family clarity.
Watch CGT rules for transfers at market value to connected persons and note there is no CGT on death. Also factor in upcoming changes: Business Relief from April 2026 and pensions from April 2027.
Protect your standard of living first. Then act confidently, seek regulated advice where sums or family dynamics are complex, and review plans regularly for lifetime peace of mind.