You’ve decided to give your child financial help – perhaps for a property purchase, a wedding, or simply to give them a boost. The bank transfer of £5,000, £10,000 or £20,000 is ready, you just need to hit send. Before you do, a few checks are worth making, because an undeclared gift can create tax complications years later.
The good news is that in the vast majority of cases, a transfer of this amount to your child will have no tax consequences. The UK has no separate gift tax; instead, gifts are covered by Inheritance Tax (IHT) rules, and most gifts between family members benefit from reliefs and exemptions. Practically speaking, a gift of £5,000, £10,000 or even £20,000 will likely fall within your annual and lifetime allowances and trigger no IHT. But “no tax to pay” does not mean “no steps to take”.
Understanding Inheritance Tax reliefs before giving £5,000, £10,000 or £20,000 to your children
Potentially Exempt Transfers (PETs) – the 7-year rule
A gift from a parent to an adult child is treated as a Potentially Exempt Transfer (PET). This means it is exempt from IHT immediately – provided the donor survives for seven years after making the gift. If the donor dies within that seven-year period, the gift may become chargeable to IHT on the donor’s estate. For most people giving modest sums like £5,000 to £20,000, this is unlikely to be a practical concern, especially if the donor is in good health. However, it is important to understand that the gift is not entirely “free” of tax unless the seven-year survival test is met.
Annual exemption – £3,000 per tax year
Everyone in the UK can give away up to £3,000 per tax year free of IHT, and this applies to anyone you choose – children, friends, or others. This exemption does not require any formality; it is automatic. If you have not used your annual exemption in the current or previous tax year, you can carry forward up to £3,000 unused from the year before. For gifts of £5,000 to £20,000, your annual exemption will cover part of the amount, and the remainder will be covered by the PET rules above.
Small gifts exemption – £250 per person per year
On top of your annual £3,000 exemption, you can also give up to £250 per person, per tax year, as a small gift, with no limit on how many people you give to. This is separate from the annual exemption and can be useful for multiple small gifts to different recipients. For a larger single transfer to one child, however, this exemption is less relevant.
Normal expenditure out of income
If you make regular gifts from surplus income – such as standing orders or regular payments to help with a child’s living costs – these are exempt from IHT provided they are part of normal spending from your income, not capital. This exemption applies even if the gifts exceed your annual exemption, provided they are habitual and you have sufficient income to cover them. A one-off lump sum transfer does not normally qualify unless you can show a pattern of such gifts.
Do you need to report the gift to HMRC?
Gifts below the exemptions – do you still need to declare?
Most gifts of £5,000, £10,000 or £20,000 to a child will fall within your reliefs and will not trigger any IHT liability. However, HMRC does not require you to report PETs that fall within exemptions. That said, it is prudent to keep records of significant gifts. If a gift is used for a major purchase – such as a deposit on a property – or if it is followed by other gifts in the same tax year, documenting the gift protects you should HMRC ask questions about the source of funds or the sequence of transactions.
Declaration required if IHT becomes due – Form IHT205
If you make a gift that does become chargeable to IHT (for example, if you die within seven years and the gift exceeds available exemptions and reliefs), your estate will need to report it. The form used is the IHT205 (Gifts and other transfers of value) within the broader Inheritance Tax account. This is completed by your executors or administrators after your death, not by you in advance. For a modest single gift to a child, this scenario is unlikely, but it underscores the importance of keeping written records of significant transfers.
Five checks to make before you transfer the money
Verify that your child is an adult (over 18); check whether you have already made other gifts in the current or previous tax year that might affect your exemptions; confirm the date so you know which tax year the gift falls into; keep a record of the purpose and amount in your bank records or a note; and if the amount is substantial or follows other gifts, consider whether you should report it to HMRC or seek advice.
Conditions for Inheritance Tax relief on gifts to children
A gift from a parent to an adult child benefits from PET status and the annual exemption automatically, with no special conditions. However, if the child is a minor (under 18), the tax position is more complex. A gift to a minor may be caught by income tax rules on parental gifts – if the income generated by the gift exceeds £100 per year, it is taxed as the parent’s income. For a lump sum of cash, this matters only if the money is invested and generates income. A simple transfer of money for spending does not trigger this rule. Additionally, if the donor is in poor health or concerned about the survival period, these are personal circumstances that might influence the decision to make a gift, though they do not change the legal position.
What if the gift is very large or combines with others?
If you are giving £5,000, £10,000 or £20,000 in isolation, and you have not made other substantial gifts recently, the amount will almost certainly be fully covered by your exemptions and reliefs. The UK nil rate band (the threshold above which IHT is charged) is currently £325,000; this is the limit before IHT applies to your estate after death. A single gift of £20,000 to a child is a tiny fraction of this. However, if you have made multiple gifts over the past several years, or if you are making gifts totalling well over £20,000 in a single tax year, it becomes sensible to review the cumulative position with a tax adviser or solicitor.
| Relief or exemption | Amount available |
|---|---|
| Annual exemption | £3,000 per tax year (plus unused amount from prior year, up to £3,000) |
| Small gifts exemption | £250 per person per tax year |
| PET (if donor survives 7 years) | Unlimited – fully exempt from IHT |
| Normal expenditure out of income | Unlimited – fully exempt from IHT |
Do you need a solicitor or notary for a transfer of £5,000, £10,000 or £20,000?
A gift of cash or a bank transfer to an adult child does not require any formal legal document or solicitor involvement. The transfer itself, and a note or email confirming it is a gift, is sufficient. Unlike a gift of property (which requires a deed of gift or formal conveyance), a cash gift is simple. A solicitor’s involvement becomes worthwhile only if the gift is conditional, if it forms part of a wider estate plan, or if there is a risk of disagreement among other family members about the fairness of the transfer. For a straightforward one-off gift to help a child, a solicitor is not necessary.
Risks of not keeping records, and practical tips before you send the money
If a gift is large enough to be noticed – for example, if it is followed by your death within seven years and there is a dispute over your estate – the absence of any written record of the gift can create problems. HMRC or other beneficiaries might argue that the money was a loan, not a gift, or that it was intended for a different purpose. Even if you are confident the gift is covered by exemptions and reliefs, a simple note on your phone or in your will confirming the gift to your child is worthwhile protection. Likewise, if the gift is transferred by bank account, ensure the payment reference mentions that it is a gift, not a loan or payment for goods.
It is also important not to confuse a substantial gift with a small personal gift. A transfer of £20,000 is not a present in the usual sense – it is a formal gift that may have inheritance and tax implications if circumstances change. Before you hit send, therefore, it is worth spending a few minutes to ensure the money is genuinely available, that you have considered whether the gift is fair to your other children or dependants, and that you have a basic record of what you are doing. With these steps in place, a gift of £5,000, £10,000 or £20,000 to your child can proceed smoothly and without regrets.
