Families gifting money to newlyweds could face an inheritance tax trap due to the continued deep freeze on exemptions, one of which has remained unchanged for more than 50 years.
Research by NFU Mutual has found under rules dating back to 1975, parents can each give £5,000 to a child when they get married or enter into a civil partnership without any inheritance tax issues. Had this been uprated by the Consumer Price Index (CPI), it would now be worth £39,876 according to analysis conducted by the financial advice firm.
In August 1975, a £5,000 gift to newlyweds would have equated to over half (56%) the value of a new home, at a time when the average UK house price was £8,942.
A £5,000 gift today covers just 1.83% of the price of the average UK house.
Similarly, the annual exemption that allows an individual to give away a total of £3,000 each tax year has remained constant since 1981, but if adjusted by inflation would now be worth £11,875.
The biggest impact of frozen IHT allowances is on the nil rate band of £325,000, which has been the same since 2009. Had it been revalued in line with inflation it would now be worth £532,500.
In addition, the residence nil rate band which allows those with direct descendants to potentially pass on up to £175,000 of the value of their home tax-free hasn’t changed since 2020. Had it kept pace with inflation it would now be worth £228,275.
Sean McCann, chartered financial planner at NFU Mutual, said: ‘’The freeze on allowances means families are being painted into an increasingly tight corner when it comes to inheritance tax planning.
“With pensions set to be caught in the IHT net from next April, a tax that was once the preserve of the very wealthy will begin to bite a wider range of families.
“One exemption that hasn’t been frozen is the ‘regular gifts from income exemption’ which allows you to give away regular amounts from income, provided you retain enough to maintain your normal standard of living.
“This can include gifts direct to loved ones, into their pensions, or into investments held in trust for their benefit.’’
| Current IHT exemption | Last change | If revalued to April 2026* |
| Gifts on marriage to a:
Child -£5000 Grandchild -£2,500 Anyone else -£1,000 |
1975 | Gifts on marriage to a
Child-£39,876 Grandchild-£19,938 Anyone else-£7,975 |
| Annual exemption £3,000 | 1981 | £ 11,875 |
| Small gift exemption £250 | 1980 | £ 1,100 |
| Nil rate band – £325,000 | 2009 | £532,500 |
| Residence nil rate band –£175,000 | 2020 | £228,275 |
*Using Bank of England inflation calculator. Graph credit: NFU Mutual
