Gifting: a simple and effective strategy for passing on wealth

Gifting remains one of the most straightforward and effective ways for families to transfer wealth to the next generation. It can be remarkably efficient from a tax perspective, and – when used thoughtfully – offers families real flexibility in how they shape their succession plans.

While there has been speculation that gifting rules could be revisited in the future, under current inheritance tax (IHT) rules the existing framework provides valuable opportunities for those considering the transition of wealth.

The merits of gifting

At its heart, gifting allows individuals to:

• Pass wealth directly to loved ones in a simple and immediate way.
• Reduce the eventual IHT burden on their estate.
• Support the next generation when funds may be most useful (for example, helping with property purchases or education).

For many families, gifting is not only tax-efficient but also the most natural way to begin succession planning.

Making use of exemptions

The UK system provides several exemptions that make gifting particularly attractive. The most common strategies are:

• Annual Exemption: Each individual can give away up to £3,000 every tax year free of IHT. If the previous year’s exemption was not used, it can be carried forward, meaning up to £6,000 could be gifted in one go. For couples, that could total £12,000.
• Gifts out of Income: A lesser used but powerful exemption allows regular gifts to be made from surplus income, provided they do not affect your standard of living and a pattern of gifting is established. They are IHT exempt with no upper limit, and these gifts can be made directly to beneficiaries or into trust.
• Potentially Exempt Transfers (PETs): If larger outright gifts are made, these fall outside of the donor’s estate for IHT purposes if the donor survives for seven years. Where the cumulative amount gifted within a seven-year period, exceeds the individual’s IHT nil rate band, the tax liability reduces gradually if death occurs between three and seven years after the gift.

Balancing control and flexibility

Outright gifts are simple, but some families are understandably cautious about parting with significant capital too soon. Common concerns include:

• Retaining sufficient funds for their own future needs.
• Worrying about the effect of large gifts on the motivation of younger generations.
• Ensuring that family wealth is preserved and not diverted outside the family.

It is important to remember that gifting is not just about tax – it is also about family values. Many wealth holders wrestle with the question of how much to give and when to give it. The goal is often to provide enough to create opportunities, without removing the incentive for the next generation to carve their own path.

In such cases, structures such as trusts or family investment companies can offer a middle ground – allowing wealth to be passed on, but with greater control over how and when it is accessed. For example, discretionary trusts can ring-fence assets for multiple generations, while family investment companies can be structured so that a right to dividends and capital is only available when it is deemed appropriate.

A timely opportunity

For all its flexibility, gifting is not without limits particularly where use of trust arrangements is involved. Transfers into discretionary trusts, for example, are generally capped at £325,000 per individual every seven years without incurring tax. The exception to this is where the assets being gifted qualify for an IHT exemption at the time the gift is made, for example assets that qualify for business relief or agricultural property relief. However, there are upcoming changes to the treatment of business and agricultural assets that mean forward planning is increasingly important prior to the changes being introduced in April 2026.

What remains constant, however, is that gifting – whether through allowances, outright transfers, or more structured approaches – continues to be one of the most effective strategies for families thinking about succession.

Final thoughts

Every family’s circumstances are unique, and gifting is as much about balancing personal priorities as it is about tax planning. For some, simplicity and immediacy are key; for others, maintaining control or protecting wealth across generations takes precedence.

Alongside the mechanics of gifting, families should also consider the framework within which wealth is passed on. Encouraging financial literacy, setting clear objectives and agreeing on governance structures can help ensure that gifts achieve more than just a tax saving – they can shape a legacy that supports opportunity, responsibility and long-term family purpose.