ISA Allowances and Inheritance Tax Gifting Rules: What You Need to Know

As the end of the tax year approaches, it is important to consider how your money is working for you, taking into account any reliefs and ex-emptions available and utilising the necessary tools in order to future proof your assets.  

Annual Individual Savings Accounts (ISA)

Allowance - £20,000 per person

ISA’s are a great way of utilising your savings and can be split across various accounts for example:

• Cash ISA
• Stocks & Shares ISA
• Life ISA (LISA).

These accounts help each individual make the most of tax-efficient savings whereby all returns on investments are completely tax-free with the added advantage that there is no need to report on tax returns. 

Inheritance Tax Gifting Rules (Gifting)

Gifting is often overlooked and misunderstood and can be an essential tool to reduce or mitigate any Inheritance Tax liability, especially when you have considerable wealth and such gifting does not impact your lifestyle.

This can be a way of helping family, planning your estate or simply being generous.  

Why Gifting Matters

Gifting isn’t just about generosity – as mentioned previously it can be an essential tool to reduce considerable wealth without depriving capital and lifestyle. 
Gifting and estate planning for the future go hand in hand and is considered the most effective way to reduce inheritance Tax (IHT).

IHT is payable when a person passes away after taking into account the estate value minus any reliefs and exemptions available. 

The main relief is the Nil Rate Band £325,000 this is a starting point and other allowances and transferable allowances may be available. Assets above your allowances may be charged at 40%.

The standard rate of IHT is 40% (please note that this can be reduced to 36% depending on the circumstances).  

IHT is payable within 6 months from the date of death and must be paid before a probate application can be submitted.

The £3,000 Annual Exemption

Each tax year, you can give away up to £3,000 without it being added to the value of your estate for IHT purposes. This is known as your “annual exemption.”

• You can gift the full £3,000 to one person or split it across multiple recipients.
• If you didn’t use last year’s allowance, you can carry it forward - but only for one year.

This means that, just before the ISA deadline of 5th of April, there’s a window of opportunity to use both this year’s and last year’s allowances - potentially gifting up to £6,000 tax-free.

Small Gifts Allowance

In addition to the annual exemption, you can give:

• Up to £250 per person per tax year
• To as many people as you like

The catch? You can’t combine this with the £3,000 exemption for the same person.

Wedding and Civil Partnership Gifts

There are also specific allowances for wedding or civil partnership gifts:

• £5,000 for a child
• £2,500 for a grandchild or great-grandchild
• £1,000 for anyone else

These gifts must be made before the ceremony and are exempt from IHT.

Regular Gifts from Income

One of the most powerful - but underused - rules is the exemption for regular gifts made out of surplus income.

To qualify:

• The gifts must be made regularly (e.g. monthly or annually)
• They must come from your income (not savings or capital)
• They must not affect your standard of living
• This must also be part of a pattern of giving (consistent)

This can be a highly effective way to pass on wealth over time without incurring IHT—but it does require good record keeping.

The Seven-Year Rule (Potentially Exempt Transfers)

If a gift doesn’t fall under any exemption, it may still become tax-free - but only if you live for seven years after making it.

• If you pass away within seven years, the gift may be subject to IHT
• The tax rate can reduce on a sliding scale (known as taper relief) after three years

This is why early planning is key.

IHT Gifting and ISAs: A Smart Combination

ISAs are great for tax free growth, but not IHT protection.

• Gifting can be essential for reducing IHT
• When gifting it is essential to consider the 7 year rule (especially for larger gifts)
• The most overlooked yet powerful strategy is regular gifts from income

A Word of Caution

Gifting should always be considered carefully:

• Once given, the money is no longer yours
• Large or complex gifts may have tax implications
• Keeping clear records is essential, especially for HMRC

If in doubt, it’s wise to seek professional advice—particularly when es-tate planning is involved.

Final Thoughts

As ISA season reaches its peak, it’s easy to focus purely on maximising your own allowance. But gifting offers another dimension—one that combines financial efficiency with long-term planning and generosity.

Used wisely, it can help you support loved ones today while reducing potential tax burdens tomorrow.

The key is understanding the rules—and acting before the tax year re-sets and planning early makes a huge difference. 

If you require further advice and support call HCB Solicitors today on 0161 790 1411 or contact our Private Client team here.

Disclaimer: This blog is for general information only and does not constitute legal advice. Always consult a solicitor for advice specific to your situation.