What is the annual gift exemption for inheritance tax?
Answered 11 March 2026
The search results for "carry forward" returned pension annual allowance results rather than IHT. I have sufficient information from the legislation (IHTA 1984 s.19) to answer the question fully. Let me now provide the complete answer.
IHT Annual Gift Exemption
What the law says
The annual exemption for inheritance tax is found in IHTA 1984, section 19. The key rules are:
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Amount: Transfers of value made by a transferor in any one tax year (ending 5 April) are exempt to the extent that the values transferred do not exceed £3,000.
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Carry-forward: Where the values transferred in a year fall short of £3,000, the unused amount is carried forward and added to the £3,000 limit for the next following year only.
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Excess allocation: Where transfers exceed £3,000, the excess is attributed to later transfers before earlier ones (on different days), and proportionately between transfers made on the same day.
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Potentially exempt transfers (PETs): A PET is initially left out of account for the annual exemption calculation. If it later becomes a chargeable transfer (i.e. the donor dies within 7 years), it is treated as made later than any non-PET transfer in the same year.
HMRC guidance / practice
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HMRC confirms the annual exemption under IHTA84/S19 (referenced as IHTM14141) applies to outright gifts to individuals and can render a disposal an "excluded transaction" for certain other tax purposes.
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Where multiple lifetime exemptions are available in the same year, HMRC applies the annual exemption last, after all other available exemptions (such as normal expenditure out of income under s.21) have been applied.
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The annual exemption is available on deemed transfers by close companies (under IHTA84/S95(5)), but is not available for small gifts, normal expenditure out of income, or gifts in consideration of marriage when those arise as deemed transfers.
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Any allocation of the annual exemption made when charging tax on a later transfer is not disturbed when an earlier (previously undiscovered) transfer comes to light.
Key practical point: The carry-forward only applies for one year. If the £3,000 (or any unused portion) is not used in the following year, it is lost — it cannot be accumulated over multiple years.
Citation sources
Any allocation of a limited exemption (such as annual exemption (IHTM14141) made in charging tax on a later transfer is not to be disturbed when the earlier transfer is discovered. The effect is that none of the annual exemption may be diverted from the later to the earlier transfer. This does not apply where:
PART II EXEMPT TRANSFERS CHAPTER I GENERAL Annual exemption. 19 1 Transfers of value made by a transferor in any one year are exempt to the extent that the values transferred by them (calculated as values on which no tax is chargeable) do not exceed £3,000. 2 Where those values fall short of £3,000, the amount by which they fall short shall, in relation to the next following year, be added to the £3,000 mentioned in subsection (1) above. 3 Where those values exceed £3,000, the excess— a shall, a
Where several of the exemptions that apply solely to lifetime transfers (IHTM14131) are available, and where the transfers in that year exceed the annual exemption limit: apply IHTA84/S21, normal expenditure out of income (IHTM14231) exemption, first on a purely factual basis, without regard to any other exemption, limited or unlimited apply IHTA84/S19, the annual exemption (IHTM14141), last after all the other available exemptions have been applied to the transfer. If the taxpayer asks you to a
Any transfer by a close company is a deemed transfer (IHTM04061) for Inheritance Tax purposes and is not a potentially exempt transfer (IHTM04057), but the annual exemption (IHTM14141) is available as the restriction in IHTA84/S19(5) to deemed transfers of value does not extend to transfers under IHTA84/S95(5). as is spouse or civil partner exemption (IHTM11031) to the extent that the estate of the spouse or civil partner of a participator is increased. The exemptions for small gifts (IHTM14180)
For the purposes of the disposal conditions relating to land and chattels, the disposal of any property is an excluded transaction in relation to the chargeable person if it was an outright gift to another individual and is, for Inheritance Tax purposes, a transfer of value that is wholly exempt under IHTA84/S19, annual exemption (IHTM14141) or IHTA84/S20 small gifts exemption (IHTM14180), FA04/Sch15/Para 10(1)(e).