UK Gift Tax (IHT) Estimator
In the UK, there is no standalone "gift tax." Large gifts can become liable for Inheritance Tax (IHT) if the giver dies within 7 years. Use this calculator for a quick estimate.
How UK gift tax actually works
If you searched for a gift tax calculator UK, you are not alone. Most people are surprised to learn that the UK does not have a direct gift tax like some other countries. Instead, gifts are considered under Inheritance Tax (IHT) rules.
In simple terms:
- Most gifts are classed as Potentially Exempt Transfers (PETs).
- If the donor survives 7 years from the gift date, it is usually outside their estate for IHT.
- If the donor dies within 7 years, some or all of the gift may become taxable.
What this calculator includes
This calculator provides an estimate using core concepts most people need first:
- Annual exemption (current year and one-year carry forward)
- Other exemptions entered by the user
- Nil-rate band interaction with earlier gifts
- 7-year taper relief rate bands
7-year taper relief rates used
| Years between gift and death | Tax rate applied to taxable part of gift |
|---|---|
| 0 to less than 3 years | 40% |
| 3 to less than 4 years | 32% |
| 4 to less than 5 years | 24% |
| 5 to less than 6 years | 16% |
| 6 to less than 7 years | 8% |
| 7+ years | 0% |
Step-by-step logic behind the result
1) Start with the gift amount
This is the gross value transferred.
2) Subtract exemptions
Exemptions can include the annual £3,000 allowance and some additional categories where applicable. The calculator allows you to enter these values directly.
3) Check available nil-rate band
Chargeable gifts from the previous 7 years can use up part of the nil-rate band. What remains can shield part (or all) of the current gift from tax.
4) Apply taper relief by years survived
If any taxable portion remains above available nil-rate band, the tax rate is adjusted based on how long the donor survived after making the gift.
Practical planning tips for families
- Keep records: Dates, amounts, recipients, and reason for exemption are crucial.
- Use annual exemptions consistently: Small yearly gifts can reduce estate value over time.
- Review earlier gifts: Prior gifts affect nil-rate band availability for newer gifts.
- Understand "gifts out of income": Properly documented regular gifts from surplus income can be exempt.
Common misunderstandings
"The recipient always pays tax on gifts."
Not usually in the UK. IHT is generally assessed against the estate, though liability can sometimes fall to recipients depending on circumstances.
"All gifts are tax-free if under £325,000."
Not necessarily. You must consider earlier gifts, available nil-rate band at death, exemptions, and survival period.
"Taper relief reduces the gift value."
Taper relief reduces the tax rate on the taxable amount. It does not reduce the gift itself.
FAQ
Is this an official HMRC calculator?
No. It is an independent educational tool for quick scenario planning.
Does this include residence nil-rate band?
No. Residence nil-rate band is situation-specific and depends on the home passing to direct descendants, estate size tapering, and other factors.
What about trusts?
Trust taxation has separate and more complex rules. Seek professional advice for trust-based planning.
Bottom line
A good UK gift tax calculator should help you understand one key point: gifts are mostly an Inheritance Tax timing and allowance issue, not a standalone gift tax bill on the day you transfer money. Use the calculator above to stress-test your assumptions, then confirm important decisions with a qualified tax adviser.