Is tax payable on money my parents give to their children?

David Wesley-Yates
22 June 2018


My parents do not own their home but have some money in banks and building societies totalling around £25,000, which is well below the inheritance tax (IHT) allowance of £325,000.

I know there is an annual limit of £3,000 for gifting money, but because their total amount is less than the inheritance tax limit, does tax have to be paid if they split this money now between their four children if they don’t live for seven years?



What and how much your parents wish to give their children is completely up to them. But whenever money is given away, it is important to plan the gift to ensure it is tax free.

You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’. Additionally, if you live more than seven years from when you make a gift, your children or family won’t have to pay inheritance tax on your gift when you die. In this situation, your gift becomes known as a ‘potentially exempt transfer’.

Each individual has their own nil-rate IHT-free band, currently set at £325,000. This means that their estate and taxable gifts are exempt from inheritance tax up to a certain threshold – currently £325,000.

However, it doesn’t sound like inheritance tax will be a concern in this situation. Provided your parents’ estate is worth less than £325,000 when they die, which it seems it will be, and they give less than £325,000 away in the seven years before their death, then no tax is payable.

DAVID WESLEY-YATES Chartered tax adviser at Red & Black Accountancy