Already Gifted Money to Your Children? Five Things You Can Still Do to Protect It

• A cash gift to your child is a potentially exempt transfer that leaves your estate only after you survive seven years.
• Taper relief reduces the tax on a gift, not its value, and only once your gifts exceed the £325,000 nil-rate band.
• If you die within seven years, your beneficiaries, not your estate, is primarily liable for tax on the gift.
• A gift you still benefit from stays in your estate, so the seven-year clock never starts running.
• A written gift record and life cover in trust are the two most practical protections after a gift.

Potentially exempt transfer (PET). A potentially exempt transfer is an outright lifetime gift from one person to another. It carries no immediate inheritance tax and falls fully outside your estate once you survive seven years.

Taper relief. Taper relief reduces the rate of inheritance tax on a gift made three to seven years before death. It reduces the tax due, not the value of the gift, and applies only to gifts above the £325,000 nil-rate band.

Gift with reservation of benefit. A gift with reservation of benefit is a gift you keep using, such as a home you still live in rent-free. Under the Finance Act 1986, it stays inside your estate regardless of when you made it.

The single most useful thing you can do after a gift is record it: the date, the recipient, the amount, the source of funds, and any exemption claimed. According to HMRC, the people dealing with your estate must list gifts from the seven years before death on form IHT403.

Without records, your executors must rebuild years of bank statements, and missing gifts are a fast route to an HMRC enquiry and penalties. Keep it current: review it each April, keep the transfers that prove each gift, and store it with your will.

A gift only starts the seven-year clock once you genuinely stop benefiting from it. If you gave money but still draw on the account, or a property you still use rent-free, HMRC treats it as a gift with reservation of benefit, and it stays in your estate in full.

The fix is to let go cleanly: stop using the asset, or pay a full market rent for any property you still occupy. Where a gift was not clean, the seven-year clock only starts once you remove the benefit, so acting sooner protects more.

If you die within seven years of a large gift, your child may face a tax bill on it. A life insurance policy written in trust can provide the funds to meet that liability. The payout sits outside your estate and reaches your family quickly, without waiting for probate.

This cover is often called a gift inter vivos policy. It does not change the tax on the gift; it protects your family from a forced sale by putting cash in their hands when they need it. Whether it suits you depends on your age, health, and the size of the gift.

Not every pound you gave is exposed to the seven-year rule. According to HMRC, your annual exemption is deducted first from a gift, and any unused allowance from the previous tax year can be added on top. Small gifts, wedding gifts, and regular gifts from income are exempt too.

For the 2026 to 2027 tax year, the annual exemption is £3,000 per person, and one year’s unused allowance can carry forward, so up to £6,000 can sit outside the seven-year rule. Regular gifts from surplus income, the normal expenditure out of income exemption, carry no upper limit if they follow a regular pattern and do not reduce your standard of living.

An outright gift becomes your child’s own money, exposed to their divorce, their creditors, and one day their own estate. You cannot move it into a trust now without making a fresh gift, but you can encourage them to protect it before it mixes with everything else.

Where the money funds a property deposit, a declaration of trust can record their separate contribution, and a prenuptial or postnuptial agreement can protect a larger sum. For anything you still plan to give, a lifetime trust offers this protection more directly. Our guide on how lifetime trusts compare with will trusts sets out the trade-offs.

Most people believe that surviving four or five years after a gift means taper relief has already cut the tax sharply. It rarely works that way: taper relief reduces the rate of tax, and only on the part of your gifts above the nil-rate band.

If your gifts in the seven years before death sit within the nil-rate band (frozen at £325,000 until April 2031) there is no tax to taper. The gift still uses up your band first, which can push the rest of your estate into a 40% charge. In our experience with structured inheritance tax planning, 19 out of 20 Bluebond clients legitimately pay zero inheritance tax. That comes from arranging the whole estate so the allowances, reliefs, and timing work together, not from any single gift.

• Relying on taper relief when your gifts fall within the £325,000 nil-rate band, where no tax is tapered.
• Gifting your home but continuing to live in it rent-free, which keeps it inside your estate.
• Leaving no record of gifts, forcing your executors to rebuild them and risking penalties.
• Assuming a gift is your child’s protected money once received, with no thought to divorce or creditors.
• Treating life cover as a tax saving. It funds a possible bill, it does not reduce the tax.

Each of these five steps is within reach today. The greater value comes from setting them alongside a clear plan for everything still to pass down.

To see how gifts fit with the rest of your estate, our free inheritance tax webinar walks through the main strategies. For a structured review of where you stand, the IHT Mitigation Plan sets out your exposure and next steps.

You should work with advisers who coordinate financial planning, tax advice and legal work under one client relationship — with clear disclosure of who is regulated for what. Bluebond Tax Planning Ltd provides tax planning and coordination only; any advice on your investments, personal pension or annuity is FCA-regulated and referred to our independent partner firm — no company in the Bluebond group is FCA-authorised or an SRA-authorised law firm. Individual outcomes depend on personal circumstances and cannot be guaranteed.

If you need any help or advice in this complex area please contact us. We will help you mitigate your inheritance tax.

Disclaimer. The information in this article is general in nature and does not constitute personal financial, tax, or legal advice. UK tax legislation changes frequently, and the specific application of any rule or strategy depends on individual circumstances. Figures, thresholds, and reliefs mentioned are correct as of the 2026 to 2027 tax year unless otherwise stated. Before acting on any information here, consult a qualified adviser who has reviewed your full situation. Bluebond Tax Planning provides personal recommendations only under a signed client agreement, following a full review. Bluebond Tax Planning operates under UK legal frameworks and recognised professional conduct standards. Tax planning and legal work are not FCA regulated.

Disclaimer. Any specific decision on life cover or other regulated insurance products is FCA-regulated advice — we can introduce you to our independent FCA-authorised financial planning partner.