Do I Need to Report a Gift to HMRC for Inheritance Tax

This guide explains when gifts must be reported to HMRC for Inheritance Tax, how the seven year rule works, and which gifts are permanently exempt.

Giving money or possessions to family members is common whether it is helping a child with a house deposit, supporting grandchildren, or transferring family heirlooms. Naturally people worry about whether these gifts need to be reported to HMRC and whether Inheritance Tax will apply. The good news is that most gifts do not need to be reported at the time they are made. The rules only require HMRC involvement in certain situations and usually long after the gift has been given.

Inheritance Tax is based on the value of a person’s estate when they die. Gifts made during a person’s lifetime can be added back in for calculation purposes depending on when the gift was made and who it was made to. In my opinion the topic can seem more intimidating than it is because the rules are easier to follow once you understand the timeline and the types of gifts that are tax free.

This guide explains when you must report gifts to HMRC, when you do not need to report anything, what counts as a gift, how the seven year rule works, what exemptions apply, who reports the gift, and how to avoid confusing or unnecessary paperwork.

Do You Need to Report a Gift to HMRC When You Make It

The simple answer

No. You do not need to report gifts to HMRC at the time you make them.

HMRC does not have a live reporting system for gifts. You can give money, possessions, or assets during your lifetime and you do not tell HMRC immediately. There is no form to fill in and no automatic tax to pay on the day the gift is given.

HMRC only needs to know about gifts after someone has died, if those gifts are relevant for Inheritance Tax.

The only exception

Gifts into a trust may require immediate reporting and specialist tax forms. This is a separate rule and applies only in specific trust situations.

For ordinary family gifts such as money, jewellery, furniture, property deposits, or general financial support there is no immediate reporting requirement.

When Do Gifts Have to Be Reported to HMRC

Gifts only become relevant for HMRC when:

  1. The person who made the gift dies

  2. Their estate is large enough to require an Inheritance Tax calculation

  3. The gift was made within the last seven years

  4. The gift was not covered by one of the standard exemptions

If all four conditions apply the executor must report the gift to HMRC as part of the estate administration. HMRC assesses whether Inheritance Tax is due based on the value of the estate plus relevant gifts made in the seven years before death.

In my opinion most worry happens because people confuse the lifetime rules with the estate rules. The reporting burden falls mainly on the executor not the person making the gift.

What Counts as a Gift for Inheritance Tax Purposes

A gift is anything that reduces the value of your estate. It includes:

  • Cash

  • Bank transfers

  • Giving away a valuable item

  • Selling something for less than market value (a discounted transfer)

  • Paying someone’s bills on their behalf

  • Transferring property

  • Forgiving a debt

Gifts do not include:

  • Routine support paid from normal income

  • Genuine loans that must be repaid

  • Items of low value given without intention of reducing the estate

Exempt Gifts That Never Need to Be Reported

Some gifts are always exempt regardless of when they are given or when the person dies. These never need to be reported to HMRC.

1. Small gift exemption

You can give up to £250 per person per tax year.

2. Annual gift exemption

You can give away up to £3,000 per tax year. Unused allowance can be carried forward one year.

3. Wedding and civil partnership gifts

  • £5,000 to a child

  • £2,500 to a grandchild

  • £1,000 to anyone else

4. Normal expenditure out of income

Gifts made regularly from spare income rather than savings or assets are exempt. This includes:

  • Paying for children’s rent

  • Helping with school fees

  • Regular transfers for grandchildren

  • Paying life insurance premiums on someone’s behalf

This is one of the most powerful and generous exemptions.

5. Gifts to a spouse or civil partner

Always exempt regardless of amount.

6. Gifts to charity

Always exempt.

7. Gifts to political parties or qualifying organisations

Also exempt.

These gifts never form part of the estate for Inheritance Tax so the executor does not need to report them.

Gifts That May Need to Be Reported After Death

The following gifts must be considered by the executor if the person dies within seven years and the estate is large enough to require an IHT calculation.

1. Gifts over the annual exemption

If you give more than £3,000 in a tax year the excess becomes a “potentially exempt transfer”.

2. Gifts of large assets

Art, antiques, jewellery, watches, or other valuables over the small gift exemption.

3. Gifts of property or land

Including transfers of ownership to children or relatives.

4. Gifts where the donor still benefits

Called “gifts with reservation of benefit.” Examples include:

  • Gifting a house but continuing to live in it

  • Gifting a car but continuing to use it

  • Gifting money but receiving the interest

These are treated as if the person never gave the gift away.

5. Gifts into trust

These may also trigger lifetime reporting depending on the trust type.

If any of the above apply the executor will include the gift in the IHT return.

The Seven Year Rule and Why It Matters

Gifts become exempt if the person lives more than seven years after giving them. This is called the seven year rule.

If the donor survives seven years

The gift falls completely outside the estate and no tax is due.

If the donor dies within seven years

The gift may reduce the available nil rate band and may trigger Inheritance Tax depending on the estate size.

Taper relief

If the donor dies between three and seven years after the gift, taper relief may reduce any tax due but does not reduce the amount of the gift counted towards the nil rate band.

In my opinion the seven year rule is one of the most misunderstood parts of gifting. It does not mean tax is automatically due. It simply means the gift must be included in the calculation if the estate is large enough.

Do You Need to Report Gifts If the Estate Is Below the Inheritance Tax Threshold

No. If the estate is below the nil rate band (£325,000) plus any available residence nil rate band (£175,000) then gifts do not create any tax liability and do not need detailed reporting.

Example
Estate value: £200,000
Gifts in last seven years: £50,000
Threshold available: £325,000
No IHT due. Gifts do not create a tax bill.

The executor may still need to note the gifts for completeness but there is no tax impact.

Who Is Responsible for Reporting Gifts to HMRC

The responsibility lies with the executor or administrator after the donor has died.

The person making the gift does not report anything. The recipient does not report anything.

The executor reports gifts using:

  • IHT400 forms
    or

  • IHT205 for simpler estates
    depending on estate size and complexity.

Executors will usually ask family members about gifts given in the seven years before death which is why keeping simple records during lifetime is helpful.

What Records Should You Keep When Giving Gifts

Even though gifts do not need reporting at the time they are made it is sensible to keep a record.

Suggested records include:

  • Date of each gift

  • Amount or value

  • Who it was given to

  • Reason for the gift

  • Whether it came from surplus income or savings

  • Any valuations for assets

  • Any evidence of gift transfer

These records help your executor and make probate far easier.

In my opinion a simple one page yearly summary is enough for most people.

Special Cases to Be Aware Of

1. Gifting your home

If you gift your home but continue living in it without paying full market rent it is a gift with reservation and is treated as part of your estate.

2. Gifting shares

Gifts of shares may carry Capital Gains Tax consequences for the donor but not the recipient.

3. Gifting money overseas

Still counted for UK IHT if the donor is UK domiciled.

4. Gifting business assets

May qualify for Business Relief which reduces or removes IHT on the gift.

5. Gifts into trust

May trigger immediate IHT of 20 percent if over the nil rate band. Specialist advice is essential.

Real UK Examples

Example 1: Gifting money to children

Maria gives each of her children £10,000 for a house deposit.
No immediate reporting.
If she dies within seven years the executor will include £20,000 as part of lifetime gifts.

Example 2: Regular monthly gifts

John gives his granddaughter £200 a month from his pension.
This qualifies as normal expenditure out of income.
Never needs reporting even after death.

Example 3: Gifting jewellery

Sarah gives her daughter jewellery worth £8,000.
No immediate reporting.
If Sarah dies within seven years this may need to be declared depending on estate size.

Example 4: Gifting a home

Alan gifts his home to his son but continues living there rent free.
This is a gift with reservation.
Full value will be included in his estate even if many years pass.

Example 5: Gifting money from savings

Emma gives £50,000 to her son.
No immediate reporting.
If she dies within seven years the executor reports the gift only if the estate exceeds thresholds.

Final Thoughts

You do not need to report gifts to HMRC at the time they are made. Most gifts will never need to be reported at all unless the donor dies within seven years and their estate is large enough for Inheritance Tax to apply. The responsibility to report gifts rests with the executor not with the person giving the gift or receiving it. Many gifts are exempt permanently including small gifts, annual allowances, spouse gifts, charitable gifts, and regular payments from spare income.

In my opinion people often overcomplicate gift reporting. The simplest approach is to give freely within the exemptions, keep a simple list of gifts over £250, and allow your executor to handle the HMRC reporting if it ever becomes relevant.