Inheritance Tax Gift Reliefs: Current Rules for 2026/27

Inheritance Tax gift reliefs can reduce the amount of Inheritance Tax (IHT) arising when wealth is transferred during your lifetime or on death. However, different rules apply depending on what you give, who receives it, whether you continue to benefit from it and, for business or agricultural assets, whether the property meets specific qualifying conditions.

This guidance is for individuals making lifetime gifts, families undertaking estate planning, business owners and agricultural property owners who want to understand the main reliefs and exemptions available in the 2026/27 tax year.

Using the correct IHT gift reliefs can help preserve more wealth for beneficiaries, but incorrectly assuming that a gift is exempt can create unexpected tax liabilities. These reliefs sit within the wider Inheritance Tax and estate planning framework explained in our ultimate guide to personal tax in the UK. Good estate planning therefore requires both an understanding of the available reliefs and clear records showing when gifts were made and why a particular exemption or relief applies.

How Inheritance Tax Relief on Gifts Works

Not every lifetime gift is immediately subject to Inheritance Tax. Some transfers are completely exempt, while others may become exempt if the person making the gift survives for seven years.

Separate reliefs can also apply where qualifying business or agricultural property is transferred. These rules changed significantly from 6 April 2026, making it particularly important to use current rather than historic guidance.

The main areas to consider are:

• Annual and small-gift exemptions.
• Wedding and civil partnership gift exemptions.
• Normal expenditure out of income.
• Gifts between spouses and civil partners.
• Charitable gifts.
• The seven-year rule for potentially exempt transfers.
• Business Relief and Agricultural Relief.

Annual Inheritance Tax Gift Exemption

For 2026/27, an individual can give away up to £3,000 each tax year under the annual exemption without the gift being added to the value of their estate for IHT purposes.

The £3,000 can be given to one person or divided between several recipients.

If the full annual exemption was not used in the previous tax year, the unused amount can normally be carried forward for one tax year only. The current year’s exemption must generally be used before the brought-forward amount.

For example, someone who made no qualifying gifts in 2025/26 could potentially have up to £6,000 of annual exemptions available in 2026/27.

Small Gifts and Wedding Gifts

The small-gift exemption allows gifts of up to £250 per person per tax year to any number of people, provided another exemption has not been used for the same recipient.

Separate exemptions apply to gifts made for weddings or civil partnerships. The maximum exempt amounts are:

• £5,000 when given to a child.
• £2,500 when given to a grandchild or great-grandchild.
• £1,000 when given to another person.

The wedding or civil partnership exemption can normally be combined with another qualifying exemption, such as the annual exemption, although it cannot be combined with the small-gift exemption for the same person.

Normal Expenditure Out of Income

One of the most valuable Inheritance Tax gift reliefs for individuals with substantial recurring income is the normal expenditure out of income exemption.

There is no fixed monetary ceiling. Regular gifts may be immediately exempt from IHT where they:

• Form part of the donor’s normal expenditure.
• Are made from income rather than capital.
• Leave the donor with sufficient income to maintain their normal standard of living.

This exemption can potentially cover regular payments towards a child’s living costs, contributions to savings or other recurring family support. Structuring these as genuine gifts paid out of disposable income, rather than capital, is essential for the exemption to hold up under scrutiny.

Evidence is particularly important. Records of income, normal living expenditure and gifts should be retained so that executors can demonstrate why the exemption applies if HMRC later reviews the estate.

The Seven-Year Rule for Lifetime Gifts

Many outright gifts from one individual to another are potentially exempt transfers rather than immediately exempt gifts, which is why the seven year rule still applies to IHT PETs in most circumstances.

If the donor survives for seven years after making the qualifying gift, it will normally fall outside their estate for Inheritance Tax purposes.

If the donor dies within seven years, the gift may need to be brought back into the IHT calculation. Lifetime gifts generally use the available nil-rate band before the assets remaining in the estate.

Taper relief may reduce the tax payable on certain gifts where death occurs more than three years after the transfer. It reduces the tax on the gift rather than reducing the value of the gift itself.

Gifts With Reservation of Benefit

The seven-year rule should not be viewed as sufficient where the donor continues to benefit from the asset.

For example, giving a home to children while continuing to occupy it rent-free can create a gift with reservation of benefit. In those circumstances, the property may remain within the donor’s estate for IHT despite legal ownership having been transferred.

Business Relief for Inheritance Tax in 2026/27

Business Relief can reduce the taxable value of qualifying business property transferred during lifetime or on death. However, important changes took effect from 6 April 2026.

For 2026/27, the 100% rate of Agricultural Relief and Business Relief is subject to a combined £2.5 million allowance for qualifying property.

Qualifying agricultural and business property within the available £2.5 million allowance can generally receive 100% relief. Qualifying value above the allowance generally receives 50% relief.

Any unused £2.5 million allowance can also be transferred to a surviving spouse or civil partner. Depending on the circumstances, this can increase the surviving spouse’s available allowance to as much as £5 million.

What Business Property Can Qualify?

Depending on the detailed conditions, Business Relief may apply to assets including:

• A qualifying business or an interest in a business.
• Shares in a qualifying unlisted company.
• Certain assets owned personally and used by a qualifying business.

Qualifying ownership periods normally apply, and businesses consisting wholly or mainly of investment activities generally do not qualify.

From 6 April 2026, certain shares traded on markets that do not meet HMRC’s definition of listed, including qualifying AIM shares, generally receive Business Relief at 50% rather than 100%.

Agricultural Relief for Inheritance Tax in 2026/27

Agricultural Relief can reduce the agricultural value of qualifying agricultural property for Inheritance Tax purposes.

Potentially qualifying property can include agricultural land or pasture and certain buildings or farmhouses where the statutory conditions are satisfied.

From 6 April 2026, Agricultural Relief shares the same £2.5 million 100% relief allowance with qualifying Business Relief property.

This means the allowance is not £2.5 million for Agricultural Relief plus another £2.5 million for Business Relief. It applies to the combined value of property qualifying for relief at the 100% rate.

Where the available allowance has been fully used, additional qualifying agricultural or business property generally receives relief at 50%.

Special transitional provisions can also affect gifts made on or after 30 October 2024 where the donor dies within seven years and on or after 6 April 2026. Business and agricultural property owners should therefore review substantial lifetime transfers carefully rather than relying on the rules that applied when the gift was originally made.

Gifts Between Spouses and Civil Partners

Transfers between spouses or civil partners are generally exempt from Inheritance Tax, subject to the relevant statutory conditions.

This is one of several gifts exempt from Inheritance Tax, and can play an important role in estate planning because assets can normally pass between spouses without an immediate IHT charge. Unused nil-rate bands and, from 6 April 2026, unused Agricultural and Business Relief allowances may also be transferable in qualifying circumstances.

Special rules can apply where one spouse or civil partner is not a long-term UK resident, so international families should review the position separately.

Charitable Gifts and Inheritance Tax

Qualifying gifts to charities are generally exempt from Inheritance Tax.

Charitable giving through a will can also affect the rate of IHT charged on the remaining taxable estate. Where at least 10% of the relevant net estate is left to qualifying charities, the IHT rate on the remaining chargeable estate can potentially fall from 40% to 36%.

The calculation can be complex where an estate contains trusts, business assets or agricultural property, so the effect should be modelled before relying on the reduced rate.

Keeping Records of Lifetime Gifts

Good records are essential when relying on Inheritance Tax relief on gifts.

A lifetime gifting record should normally identify:

• The date the gift was made.
• The recipient.
• The value of the gift at the date of transfer.
• The asset transferred.
• The exemption or relief being relied upon.
• Evidence supporting the valuation where relevant.
• Income and expenditure records for gifts claimed as normal expenditure out of income.

Records are particularly important because an executor may need to establish the tax treatment many years after a gift was originally made.

Common Inheritance Tax Gifting Mistakes

Effective gift relief for Inheritance Tax depends on satisfying the relevant conditions rather than simply transferring ownership.

Common problems include:

• Giving away an asset but continuing to benefit from it.
• Assuming every gift becomes exempt immediately.
• Failing to retain evidence of regular gifts from income.
• Using the £250 small-gift exemption alongside another exemption for the same recipient.
• Assuming Business Relief or Agricultural Relief automatically provides 100% relief regardless of value.
• Using outdated pre-April 2026 rules when planning business or agricultural transfers.
• Failing to obtain an appropriate valuation for substantial assets.

Reviewing Your Inheritance Tax Gift Reliefs

Inheritance Tax gift reliefs remain an important part of estate planning, but the appropriate strategy depends on the assets involved, the donor’s income and financial needs, the recipient and the timing of the transfer.

The annual exemption, small-gift exemption, wedding allowances and normal expenditure out of income rules can allow lifetime wealth transfers without creating additional IHT exposure where the conditions are met. Larger gifts may instead depend on the seven-year rule.

Business and agricultural property require particular attention in 2026/27 because the rules changed from 6 April 2026. The combined £2.5 million allowance for 100% Agricultural and Business Relief means owners should review both lifetime gifting and succession arrangements under the current rules rather than relying on previous assumptions.

Keeping clear records and reviewing significant transfers before they are made can help ensure that available IHT gift reliefs are used correctly and that beneficiaries and executors understand the resulting tax position.

Disclaimer: This article provides general information based on UK Inheritance Tax rules for the 2026/27 tax year. The treatment of lifetime gifts, Business Relief and Agricultural Relief depends on individual circumstances and detailed qualifying conditions. Professional advice should be obtained before making substantial gifts or restructuring an estate.

Case Study: Checking IHT Gift Reliefs Before a Family Business Transfer

David approached our Wimbledon office while considering how to pass wealth to his two adult children. Alongside regular cash gifts, he was thinking about transferring part of his interest in a family business and wanted to understand which Inheritance Tax gift reliefs could apply under the 2026/27 rules.

Cigma Accounting reviewed the gifts he had already made and explained how the annual £3,000 exemption and regular gifts from surplus income could be used where the relevant conditions were satisfied. We also highlighted the importance of maintaining records of his income, normal expenditure and recurring gifts so that the treatment could be supported if HMRC reviewed the estate in the future.

The proposed business transfer required separate consideration. We reviewed the potential availability of Business Relief, including the qualifying conditions and the 2026/27 rules affecting the combined £2.5 million allowance for qualifying Business Relief and Agricultural Relief property. David was also advised not to assume that every larger lifetime transfer would be immediately exempt, as the seven-year rule could remain relevant depending on the nature of the gift.

As part of the wider work, Cigma Accounting considered David’s personal tax, business tax and succession planning position alongside the IHT implications. This allowed the proposed transfer to be considered as part of his overall financial and business arrangements rather than simply as an isolated gift.

Following the review, David had a clearer understanding of the reliefs potentially available, the records he needed to maintain and the areas requiring further review before transferring a substantial business asset.